QUESTION 20 A company is considering an 8-year project to expand into a new geog
ID: 2769848 • Letter: Q
Question
QUESTION 20
A company is considering an 8-year project to expand into a new geographical area. The project requires a new machine, which would cost $180,000 FOB San Francisco, with a shipping cost of $7,000 to the new plant location. Installation expenses of $10,000 would also be required. This new machine would be classified as 7-year property for MACRS depreciation purposes. The project engineers anticipate that this equipment could be sold for salvage for $38,000 at the end of the project. If the corporate tax rate is 27%, what is the after tax salvage cash flow for this new machine at the end of the project? (Answer to the nearest dollar.)
MACRS percentages for depreciation each year are as follows:
QUESTION 27
After studying the economy, you forecast that there is a 70% chance of a good economy next year and a 30% chance of a poor economy. If the economy is good, you estimate that a stock you have been following would have a 24% return. Likewise, if the economy is poor, you estimate a -6% return for that same stock. The risk-free rate is 4.3%. What is the standard deviation of the expected returns for this stock? (Answer to the nearest tenth of a percent, but do not use a percent sign).
Probability
Return
Good Economy
70%
24%
Poor Economy
30%
-6%
Risk-Free Rate = 4.3
Probability
Return
Good Economy
70%
24%
Poor Economy
30%
-6%
Explanation / Answer
As the book value of the asset would be zero at the end of 8 years , as the asset has been fully depreciated
The salvage value =38000*(1-.27) =$27740
0 1 2 3 4 5 6 7 8 Deprection 14.29% 24.49% 17.49% 12.49% 8.93% 8.93% 8.93% 4.45% Deprection 25722 44082 31482 22482 16074 16074 16074 8010