Premium Pie Company needs to purchase a new baking oven to replace an older oven that requires too much
energy to run. The industrial size oven will cost $1,200,000.
The oven will be depreciated on a straight-line basis
over its six-year useful life. The old oven cost the company $800,000 just four years ago. The old oven is being
depreciated on a straight-line basis over its expected ten-year useful life. (That is, the old oven is expected to
last six more years if it is not replaced now.) Due to changes in fuel costs, the old oven may only be sold today
for $100,000. The new oven will allow the company to expand, increasing sales by $300,000 per year. Expenses
will also decrease by $50,000 per year due to the more energy efficient design of the new oven. Premium Pie
Company is in the 40% marginal tax bracket and has a required rate of return of 10%.
a. Calculate the net present value and internal rate of return of replacing the existing machine
b. Explain the impact on NPV of the following:
i. Required rate of return increases
ii. Operating costs of new machine are increased
iii. Existing machine sold for less
a. Calculate Initial Outlay
Purchase Price $1,200,000
Sale of old (100,000)
Tax savings from sale ($100,000 - 480,
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Strict scrutiny tests are applied to classifications that do not involve a suspect or protected class
Indicate whether the statement is true or false
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Indicate whether this statement is true or false.
The Privacy Act:
A) prohibits any disclosures of records covered by the Act to the individuals about whom information has been collected. B) is another name for the Freedom of Information Act. C) requires agencies to collect information to the greatest extent practicable directly from the individual affected. D) requires agencies, after six years, to delete the information gathered about an individual.