Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. a firm is considering the following two competing

A firm is considering the following two competing proposals for the purchase of new equipment. Assume straight-line...

90.2K

Verified Solution

Question

Finance

A firm is considering the following two competingproposals for the purchase of new equipment.

Assume straight-line depreciation and a tax rate of 20percent.

(a) Calculate the net present value of each alternativeat a discount rate of 10 percent.

(b) If 10 percent is the required rate of return, whichalternative should be selected? Why?

Please show all steps. Don't round off until you get to theend.

A

B

Net Cash Outlay

9000

7500

Salvage Value

0

0

Estimated Life

5 years

5 years

Net Cash Savings before Depreciation and Taxes

Year 1-3

3000

2000

Year 4-5

2500

2000

Answer & Explanation Solved by verified expert
3.7 Ratings (408 Votes)
a NPV of Proposal A 940998 941 NPV of Proposal B 297505 298 b As proposal A has the positive NPV hence alternative A should be selected Proposal A Cost of equipment 9000 Salvage Value 0 Estimated Life 5 years Depreciation 90005year 1800 Sl No Year 0 1 2 3 4 5 a Net Cash Outlay 9000 b Net Cash Savings before Depreciation and    See Answer
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Zin AI - Your personal assistant for all your inquiries!
Become a Member

Transcribed Image Text

A firm is considering the following two competingproposals for the purchase of new equipment.Assume straight-line depreciation and a tax rate of 20percent.(a) Calculate the net present value of each alternativeat a discount rate of 10 percent.(b) If 10 percent is the required rate of return, whichalternative should be selected? Why?Please show all steps. Don't round off until you get to theend.ABNet Cash Outlay90007500Salvage Value00Estimated Life5 years5 yearsNet Cash Savings before Depreciation and TaxesYear 1-330002000Year 4-525002000

Other questions asked by students

Q

Verify the Duality Theorem 4.1.9 on each of the following LOPs. a. Max. z= −211x1 −189x2 −106x3 −175x4 s.t....

Advance Math
Q

A common clinical manifestation of pulmonary infections is pulmonary edema. Explain what leads to the accumulation...

Biology
Q

A detailed reasoning on why endotherms use more oxygen/have higher metabolic rates at lower temperatures and...

Medical Sciences
Q

pharmacology question Briefly explain why a Carbonic Anhydrase Inhibitor would cause more pronounced hypokalemia than a typical...

Medical Sciences
Q

Write a perspective on your own neighborhood.  Do you feel you are defined by your surroundings, or...

Psychology
Q

January 2023 living environment regents

Biology
Q

Q5. Assume a Watercrest Sports outlet store began October 2016 with 47 pairs of water...

Accounting
Q

fuzzy Dice Inc. ("Fuzzy" o "la Compaa") fabrica artculos de novedad que distribuye a mayoristas...

Accounting
Q

1) Discuss the total changes in cash 2005. 2) Discuss, from an analyst's viewpoint, the...

Accounting
Q

The ledger of Sunland Corporation at November 30,2024, contains the following summary data: Cash...

Accounting
Q

Class, what is a business transaction? What criteria are considered when identifying a business transaction?

Accounting
Q

Can you please fill out the image below with data from the last 12 months...

Accounting