I have 4 questions I'm not quite understanding. Would you please assist? 1. The Sip and Dip company is considering the…

I have 4 questions I’m not quite understanding. Would you please assist?

1. The Sip and Dip company is considering the acquisition of  a new automatic donut dropper for $600,00. The machine will have a 6 yr life and will produce before tax cash savings of $200,000 each year. The asset is to be depreciated using the straight-line depreciation method with no salvage value. The company’s tax rate is 40%. What is the after tax net cash inflow on the investment?

 

2. Shirt co. wants to purchase a new sewing machine for its sewing plant. The investment is expected to generate annual net cash inflows of $30,000 adn have a useful life of 8 years, and an estimated salvage value of $10,000. If Shirt Co. has a required rate of return of 12%, the maximum amount they will be willing to spend for this machine is what?

 

3. Darlington Company is considering investing in an equipment , which will increase yearly cash revenues by $65,000 and  yearly cash expenses to operate the equipment $30,000. The asset will cost $200,000 and will last 8 years, with a salvage value of $40,000. Assuming a tax rate of 39%, determine the net present value of this asset, if the company requires a 10% return on investments?

 

4. Baton Rouge Company is considering purchasing new equipment which will cost $950,000. This equipment is expected to have a useful life of 15yrs., have a salvage value of $50,000 and is expected to have an annual net cash inflow (before taxes) of $80,000. Assume the company is in the 34% tax bracket. What is Baton Rouge’s annual net cash inflow (after taxes)? 

 

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