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1. Atlantic Drydock is considering replacing an existing hoist...

1. Atlantic Drydock is considering replacing an existing hoist (máquina o equipo) with one of two newer, more e?cient pieces of
equipment. The existing hoist is 3 years old, cost $32,000, and is being depreciated under MACRS using a 5 year recovery period.
Although the existing hoist has only 3 years (years 4, 5 and 6) of depreciation remaining under MACRS, it has remaining usable life of
5 years. Hoist A, one of the two possible replacement hoists, costs $40,000 to purchase and $8,000 to install. It has a 5 year usable
life and will be depreciated under MACRS using a 5 year recovery period. Hoist B costs $54,000 to purchase and $6,000 to install. It
also has a 5 year usable life and will be depreciated under MACRS using a 5 year recovery period.

Increased investments in net working capital will accompany the decision to acquire hoist A or hoist B. Purchase of hoist A would
result in a $4,000 increase in net working capital; hoist B would result in a $6,000 increase in net working capital. The projected
earnings before depreciation, interest and taxes with each alternative hoist and the existing hoist are given in the following table:

Earnings before depreciation, interest and taxes

Year
With hoist A
With hoist B
With existing hoist
1 $21,000 $22,000 $14,000
2 $21,000 $24,000 $14,000
3 $21,000 $26,000 $14,000
4 $21,000 $26,000 $14,000
5 $21,000 $26,000 $14,000

The existing hoist can currently be sold for $18,000 and will not incur any removal or cleanup costs. At the end of 5 years, the existing
hoist can be sold to net $1,000 before taxes. Hoists A and B cab be sold to net $12,000 and $20,000 before taxes, respectively, at
the end of the 5 year period. The Yrm is subject to a 40% tax rate.

a. Calculate the initial investment associated with each alternative.

b. Calculate the incremental operating cash in[ows associated with each alternative.
c. Calculate the terminal cash [ow at the end of year 5 associated with each alternative.
d. Depict on a time lime the relevant cash [ows associated with each alternative. (dibuja la línea de tiempo con los "cash [ows" para
cada alternativa).

2. Thomas Company is considering two mutually exclusive projects. The Yrm has set a maximum 4 year payback requirement and a
12% cost of capital. The company has estimated its cash [ows as shown in the following table:

Project A Project B
Initial Investment (CF0) $130,000 $85,000

Year(t) Cash in[ows (CFt)

Project A Project B
1 $25,000 $40,000
2 35,000 35,000
3 45,000 30,000
4 50,000 10,000
5 55,000 5,000

a. Calculate the Payback Period for each project (para cada uno de los proyectos).
b. Calculate the NPV of each project (para cada uno de los proyectos), and assess its acceptability.
c. Calculate the IRR for each project (para cada uno de los proyectos), and assess its acceptability.
d. Evaluate and discuss the rankings of the two projects on the basis of your Yndings in parts a, b and c. (Discuta y decida si los
proyectos son o no aceptables bajo cada uno de los métodos utilizados en a, b y c).

3. Troy Industries purchased a new machine 3 years ago for $80,000. It's being depreciated under MACRS with a 5 year recovery
period using the percentages given in the MACRS table (la tabla se incluye en la primera página del examen). Assume a 40% tax rate.

a. What is the book value of the machine?

b. Calculate the Yrm tax liability if it sold the machine for each of the following amounts: $100,000; $56,000; $23,200 and $15,000

Business Finance 섈 쉋

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Answer & Explanation

Solved by veri6ed expert 숨

Dear Student,
PFA solution.

Regards.

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1 Existing
1
2
$14,000.00
$14,000.00
$6,400.00
$10,240.00
$7,600.00
섘 $3,760.00
$3,040.00
6306903.xlsx
$1,504.00
$4,560.00
Comments (3) 쇯 $2,256.00
$6,400.00
싌 Can you send me the formulas you used for each problem?
$10,240.00
Expert Tutor
$10,960.00
$12,496.00 0
EBITDA
Depreciation
PAT
싌 Dear student,<br />
I have gone through your clariYcation and will revert you back ASAP.<br />
<br />
<br />
Regards
Expert Tutor

싌 Dear student,<br />

I have gone through your clariYcation and will revert you back ASAP.<br />
<br />
<br />
Regards
Expert Tutor

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