Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. accounting
  3. crabb ltd is considering whether to purchase a new

Crabb Ltd is considering whether to purchase a new machine. It will cost $440,000 to...

80.2K

Verified Solution

Question

Accounting

image
Crabb Ltd is considering whether to purchase a new machine. It will cost $440,000 to purchase and $40,000 to install. It is expected to generate additional annual revenues of $90,000 per year for eight years, at which time it will have no further use or value. It will also cost an additional $2,000 in electricity per year. Crabb Ltd uses straight line depreciation over the 8 year period. However, the ATO (Australian Tax Office) allows an accelerated rate of depreciation and assigns a 5 year useful life to the machine. The corporate tax rate is 30%. The company applies a 7% rate of return to similar projects (the present value factor of an annuity of eight years @ 7% is 5.97). Required: (a) What is the payback period for this project? (Ignore taxes and depreciation for part (a)) (3 marks) (b) What is the cash flow in year zero? (2 marks) (c) Calculate the tax shield (the incremental cash saving based on depreciation ONLY) for years 1-5. (3 marks) (d) Calculate the NPV of this investment (10 marks) (e) Should the company accept this project? Why or why not? (2 marks)

Answer & Explanation Solved by verified expert
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: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Q

1. Which response serves to decrease body temperature if body temperature increases above its normal range? Question...

Medical Sciences
Q

Please discuss the following prompt: There is a story of a Buddhist monk who was on...

Psychology
Q

Write log t 2 in expanded form

Statistics
Q

Find the exact value of the expression if possible Do not use a calculator 67...

Algebra
Q

Una empresa tiene ventas netas a crdito de $750 000 para el ao y estima...

Accounting
Q

4. In 2023, Ms. Dalvi receives several gifts from her employer: - As is the...

Accounting
Q

a. Explain and provide reasons for how you would assign participants to groups for an...

Accounting
Q

During the taking of its physical inventory on December 31, Barry's Bike Shop incorrectly counted...

Accounting
Q

ACC 350 Project One Guidelines and Rubric Competencies In this project, you will demonstrate your...

Accounting
Q

Using the following information, you are to prepare a comprehensive budget for Friends, Again. The...

Accounting
Q

Quilcene Oysteria farms and sells oysters in the Pacific Northwest The company harvest August. The...

Accounting
Q

Ch 8: Video Lecture Assignment (i Saved Help Save & Exit Submit 8 Required...

Accounting