DuPree Coffee Roasters, Inc., wishes to expand and modernize its facilities. The installed cost of a proposed computer-controlled automatic-feed roaster will be $130,000. The firm has a chance to sell its 4-year-old roaster for $35,000. The existing roaster originally cost $60,000 and was being depreciated using MACRS and a 7-year recovery period Percentage by recovery year* Recovery year 3 years 5 years 7 years 10 years 1 33% 20% 14% 10% 2 45% 32% 25% 18% 3 15% 19% 18% 14% 4 7% 12% 12% 12% 5 12% 9% 9% 6 5% 9% 8% 7 9% 7% 8 4% 6% 9 6% 10 6% 11 4% Totals 100% 100% 100% 100% DuPree is subject to a 21% tax rate. a. What is the book value of the existing roaster? b. Calculate the after-tax proceeds of the sale of the existing roaster. c. Calculate the change in net working capital using the following figures: Anticipated Changes in Current Assets and Current Liabilities Accruals −$20,000 Inventory +50,000 Accounts payable +40,000 Accounts receivable +70,000 Cash 0 Notes payable +15,000 d. Calculate the initial cash flow associated with the proposed new roaster.
DuPree Coffee Roasters, Inc., wishes to expand and modernize its facilities. The installed cost of a proposed computer-controlled automatic-feed roaster will be $130,000. The firm has a chance to sell its 4-year-old roaster for $35,000. The existing roaster originally cost $60,000 and was being depreciated using MACRS and a 7-year recovery period Percentage by recovery year* Recovery year 3 years 5 years 7 years 10 years 1 33% 20% 14% 10% 2 45% 32% 25% 18% 3 15% 19% 18% 14% 4 7% 12% 12% 12% 5 12% 9% 9% 6 5% 9% 8% 7 9% 7% 8 4% 6% 9 6% 10 6% 11 4% Totals 100% 100% 100% 100% DuPree is subject to a 21% tax rate. a. What is the book value of the existing roaster? b. Calculate the after-tax proceeds of the sale of the existing roaster. c. Calculate the change in net working capital using the following figures: Anticipated Changes in Current Assets and Current Liabilities Accruals −$20,000 Inventory +50,000 Accounts payable +40,000 Accounts receivable +70,000 Cash 0 Notes payable +15,000 d. Calculate the initial cash flow associated with the proposed new roaster.
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 14P
Related questions
Question
DuPree Coffee Roasters, Inc., wishes to expand and modernize its facilities. The installed cost of a proposed computer-controlled automatic-feed roaster will be $130,000. The firm has a chance to sell its 4-year-old roaster for $35,000. The existing roaster originally cost $60,000 and was being depreciated using MACRS and a 7-year recovery period
Percentage by recovery year*
|
||||
Recovery year
|
3 years
|
5 years
|
7 years
|
10 years
|
1
|
33%
|
20%
|
14%
|
10%
|
2
|
45%
|
32%
|
25%
|
18%
|
3
|
15%
|
19%
|
18%
|
14%
|
4
|
7%
|
12%
|
12%
|
12%
|
5
|
|
12%
|
9%
|
9%
|
6
|
|
5%
|
9%
|
8%
|
7
|
|
|
9%
|
7%
|
8
|
|
|
4%
|
6%
|
9
|
|
|
|
6%
|
10
|
|
|
|
6%
|
11
|
|
|
|
4%
|
Totals
|
100%
|
100%
|
100%
|
100%
|
DuPree is subject to a 21%
tax rate.
tax rate.
a. What is the book value of the existing roaster?
b. Calculate the after-tax proceeds of the sale of the existing roaster.
c. Calculate the change in net working capital using the following figures:
Anticipated Changes in Current Assets and Current Liabilities
Accruals −$20,000
Inventory +50,000
Accounts payable +40,000
Accounts receivable +70,000
Cash 0
Notes payable +15,000
d. Calculate the initial cash flow associated with the proposed new roaster.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Step 1: Given:
VIEWStep 2: a. Calculate Book Value of Existing Roaster:
VIEWStep 3: b. Calculate After Tax proceeds from the sale of Existing Roaster:
VIEWStep 4: c. Calculation of Change in Net Working Capital:
VIEWStep 5: d. Calculate initial cash flow associated with the proposed new roaster:
VIEWSolution
VIEWTrending now
This is a popular solution!
Step by step
Solved in 6 steps with 4 images
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Excel Applications for Accounting Principles
Accounting
ISBN:
9781111581565
Author:
Gaylord N. Smith
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Excel Applications for Accounting Principles
Accounting
ISBN:
9781111581565
Author:
Gaylord N. Smith
Publisher:
Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Fundamentals Of Financial Management, Concise Edi…
Finance
ISBN:
9781337902571
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning