An entity should also assess whether there is any indication that an "Component of an entity" may impair. If any such indication exists, the entity should estimate the asset's recoverable amount. The recoverable amount can be calculated as the higher of net selling price (value if sold) and value in use (prevent value of discounted expected future cash flows). Also, the operations and cash flows of the cruise ship must fulfill the following conditions.…
The asset has a 6 year useful life; the salvage value at the end of this time is zero.…
Considering the information for the Proposal concerning the building of the new factory, the incremental cash flows are needed for the NPV analysis. The incremental cash flows are sales of $3 million a year which equals an increase in gross margin by $150,000 given a 5% gross margin and initial on investment of $10 million which is the cost of building the new factory. The savage value at the end of the project life will be $14 million.…
Over the past year, Mr. Kuklinski has paid $200,000 to consultants to write a report with all the relevant figures for this project. This report suggests that he can purchase six ships in Year 0 for $2,250,000 each. Ships don’t lose much value if they are well maintained, so it is expected that the ships will have a resale value of $2,000,000…
As of December 31, 2010, the cruise ship’s estimated fair value is $3.0 million, net book value is $4.6 million, and estimated remaining useful life is five years. In addition, the net carrying value of the nonrecourse debt is $4.0 million, there is $0.1 million of networking capital (carried at fair value) directly attributable…
Shelling Company owns $30,000 of manufacturing equipment. The equipment has a 10-year useful life and a $6,000 salvage value. Shelling uses straight-line depreciation. During the most recent annual accounting period the…
6. When originally purchased, a vehicle had an estimated useful life of 8 years. The vehicle cost $23,000 and its estimated salvage value is $1,500. After 4 years of straight-line depreciation, the asset's total estimated useful life was revised from 8 years to 6 years and there was no change in the estimated salvage value. The depreciation expense in year 5 equals: (Points : 1)…
6) What is the NPV of buying a vessel if the Ocean Carriers does not secure a contract…
The company’s equipment originally cost $30,000 and was expected to benefit the company for 5 years. Straight line depreciation method is used. Assume a $5,000 salvage value.…
The total cash flow of option C is $4.0 million instead of $1.0 million because on December 31, 2011, Smooth Sailing will turn the cruise ship back to the lender while the estimated fair value of the ship is $3.0 million. The book value of the asset group (cruise ship + working capital) is…
Deer Valley Lodge, a ski resort in the Wasatch Mountains of Utah, has plans to eventually add five new chairlifts. Suppose that one lift costs $2 million, and preparing the slope and installing the lift costs another $1.3 million. The lift will allow 300 additional skiers on the slopes, but there are only 40 days a year when the extra capacity will be needed. (Assume that Deer park will sell all 300 lift tickets on those 40 days.) Running the new lift will cost $500 a day for the entire 200 days the lodge is open. Assume that the lift tickets at Deer Valley cost $55 a day. The new lift has an economic life of 20 years. Assume that the before-tax required rate of return for Deer Valley is 14%. Compute the before-tax NPV of the new lift and advise the managers of Deer Valley about whether adding the lift will be a profitable investment. Show calculations to support your answer. Assume that the after-tax required rate of return for Deer Valley is 8%, the income tax rate is 40%, and the MACRS recovery period is 10 years. Compute the after-tax NPV of the new lift and advise the managers of Deer Valley about whether adding the lift will be a profitable investment. Show calculations to support your answer. What subjective factors would affect the investment decision?…
The present value of all these cash inflows and outflows can be calculated by discounting them at 8.5%, which was calculated by using…
Selling the plant would cause immediate cash inflow of $4,000,000 and $6,000,000 loss from employee termination. While this does net in a $2,000,000 loss, this option results in the highest net present value for Wriston Manufacturing. In this option the Detroit products are segmented into three groups and redistributed to other factories. Group 1 products are sent to Lancaster, and Group 2 products are sent to Lima, while Group 3 products are terminated. This plan yields a net present value of $24,595 million. We assume that both plants will operate for 20 years and will be sold in their last years of operation. The terminal value of the sale of the Lancaster factory would be $13,568. We take 4,000,000 as the terminal value of the Detroit factory multiplying it by 2 assuming that our factory will be sold in 20 years instead of 77 and that the highest amount of depreciation will occur in the first 50 years. After that we compare all the factories in terms of their capacity with the Detroit factory and calculated the ratio of capacity between the factories. After that we used the discount factor of 0.8 as we assume that a factory twice as big would not cost twice as much. We do the same calculations for the Lima factory, which results in a terminal value of $7,680.…
“Management has decided to acquire a new asset that costs $200,000. The estimated economic life of the asset is five years, but the firm wants the use of the asset only for three years. If the firm purchases the asset, it anticipates selling it at the end of three years for $50,000. The firm may lease the asset for $55,000 a year paid at the end of each year. The lease does not include maintenance. It is estimated that annual maintenance initially will be $5,000 (paid at the end of the year), but that cost will increase by $1,000 each year as the asset ages. The firm could purchase the asset with a five-year loan of $200,000. The loan will be retired in five payments of $40,000 unless the equipment is sold, in which case the loan must be paid off at closing of the sale. The interest rate is 10 percent and is paid at the end of each year on the balance owed. The annual interest payment is provided below. If the firm does purchase the asset, it will enter into a maintenance agreement with the manufacturer that costs $5,000 a year. The annual depreciation expense is provided below. The firm’s tax bracket is 40 percent. Based on the above information, should the firm borrow and purchase or should the…
The future liability of $2,158,925 must be discounted to reflect its fair value at its acquisition date. According to FASB, 2012, ASC ¶ 410-20-30-1, “An expected present value technique will usually be the only appropriate technique with which to estimate the fair value of a liability for an asset retirement obligation.” Since asset retirement obligation must be recognized at the acquisition of the oil platform, the future liability for year 2023 must be discounted to reflect the liability fair value on the acquisition date (FASB, 2012, ASC ¶ 410-20-25-4).…