Two Accounting Questions 2023 Business Finance

2023 1 You are evaluating two different silicon wafer milling machines The Techron I costs 215 000

1. You are evaluating two different silicon wafer milling machines. The Techron I costs $215,000, has a three-year life, and has pretax operating costs of $35,000 per year. The Techron II costs $270,000, has a five-year life, and has pretax operating costs of $44,000 per year. For both milling machines, use straight-line depreciation to zero over the project’s life and assume a salvage value of $20,000. If your tax rate is 35 percent and your discount rate is 12 percent, compute the EAC for both machines.

2. The Best Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated here. The corporate tax rate is 34 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project.

Year 0 Year 1 Year 2 Year 3 Year 4

Investment $ 24,000

Sales revenue $ 12,500 $ 13,000 $ 13,500 $ 10,500

Operating costs 2,700 2,800 2,900 2,100

Depreciation 6,000 6,000 6,000 6,000

Net working capital spending 300 350 400 300 ?

________________________________________

a. Compute the incremental net income of the investment for each year. (Do not round intermediate calculations.)

Year 1 Year 2 Year 3 Year 4

Net income $

$

$

$

________________________________________

b. Compute the incremental cash flows of the investment for each year. (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign.)

Year 0 Year 1 Year 2 Year 3 Year 4

Cash flow $

$

$

$

$

________________________________________

Year 4

$

c. Suppose the appropriate discount rate is 12 percent. What is the NPV of the project? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

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