question archive Builtrite is considering purchasing a new machine that would cost $60,000 and the machine would be depreciated (straight line) down to $0 over its five year life
Builtrite is considering purchasing a new machine that would cost $60,000 and the machine would be depreciated (straight line) down to $0 over its five year life
Subject:FinancePrice:3.94 Bought7
Builtrite is considering purchasing a new machine that would cost $60,000 and the machine would be depreciated (straight line) down to $0 over its five year life. At the end of five years it is believed that the machine could be sold for $15,000. The current machine being used was purchased 3 years ago at a cost of $40,000 and it is being depreciated down to zero over its 5 year life. The current machine's salvage value now is $10,000. The new machine would increase EBDT by $58,000 annually. Builtrite's marginal tax rate is 34%.
What the RATFCF's associated with the purchase of this machine?
Purchase A New Answer
Custom new solution created by our subject matter experts
GET A QUOTE
Answer Preview
Computation of RATFCF relating to Purchase of New Machine :
RATFCF = EBDT * (1 - Tax Rate) + Depreciation * Tax rate
= $58,000 * (1 - 0.34) + $12,000 * 0.34
= $38,280 + $4,080
RATFCF = $42,360
So, RATFCF relating to Purchase of New Machine is $42,360.
Workings:
Depreciation = (Cost of Asset - Salvage Value)/Useful Life of Asset
= ($60,000-0)/5
Depreciation = $12,000
