Lasley Corporation Is Considering the Acquisition of a New Machine

question 93

Essay

Lasley Corporation is considering the acquisition of a new machine that is expected to produce annual savings in cash operating costs of $30,000 before income taxes.The machine costs $100,000,has a useful life of five years,and no salvage value.Lasley uses straight-line depreciation on all assets,is subject to a 30% income tax rate,and has an after-tax hurdle rate of 8%.
Required:
A.Average income: ($30,000 _- $20,000)* 0.70 = $7,000
Accounting rate of return: $7,000 / $100,000 = 7%
A.Compute the machine's accounting rate of return on the initial investment.
B.

Depreciation tax savings:
Year 1: 10,000 x .3 = 3,000 x .926 = 2,778
Year 2: 20,000 x .3 = 6,000 x .857 = 5,142
Year 3: 20,000 x .3 = 6,000 x .794 = 4,764
Year 4: 20,000 x .3 = 6,000 x .735 = 4,410
Year 5: 20,000 x .3 = 6,000 x .681 = 4,086
Year 6: 10,000 x .3 = 3,000 x .630 = 1,890
TOTAL $23,070
NPV = $106,923
B.Compute the machine's net present value.

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Definitions:

Medical Model

An approach to understanding and treating mental disorders by focusing on biological and physiological explanations and treatments.

Anatomical Deviation

A variation from the normal anatomical structure or position, which may be congenital or acquired.

Unconscious Causes

Factors that influence behavior and decisions without the individual's awareness.

Alphabetical Classification

A method of organizing items or information according to the sequence of letters in the alphabet.