RoadRollers Paving Company Is Considering Buying a New Asphalt Laying

question 34

Essay

RoadRollers Paving Company is considering buying a new asphalt laying machine. The machine costs $1,300,000 and can be depreciated to zero on a straight-line basis over its life of 10 years. The machine is expected to have no salvage value. Revenues are expected to be $600,000 per year, and cost are estimated at $220,000 per year. Operating cash flows are expected to rise with inflation, forecasted at 4% per year. The risk free rate of interest is 2% and the real interest rate is 4.0%, and given the expected inflation rate, the nominal rate is 8.16%. The firm is in the 34% tax bracket. Should the investment be undertaken?
A._04,10 = $1,955,974.73
Depreciation tax shield = (8.1109) ($130,000) (.34) = $358,501.78
NPV = $2,314,476.51 - 1,300,000 = $1,014,476.51); Accept.

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Definitions:

Nervous System Connection

The complex network of neurons and synapses that facilitate communication between different parts of the body and the brain, enabling sensation, movement, and thought.

Hypothalamus

A region of the brain responsible for the regulation of certain metabolic processes and activities like temperature control, hunger, and sleep cycles.

Posterior Pituitary

The rear portion of the pituitary gland that stores and releases hormones produced by the hypothalamus, including oxytocin and vasopressin.

Norepinephrine

A neurotransmitter and hormone involved in the body's fight or flight response; also affects mood.