Business, 25.02.2020 18:00 antcobra

One year ago, Caffe Vita Coffee Roasting Co. (CVCRC) purchased three small-batch coffee roasters for $3.3 million. The company now finds that new roasters are available that offer significant advantages. The new roasters can be purchased for $4.5 million, have an economic life of 10 years, and have no salvage value. It is expected that the new roasters will produce a gross margin of $1.2 million per year, so that, using straight-line depreciation, the annual taxable income will be $750,000. The current roasters are expected to produce a gross profit of $600,000 per year and, assuming a total economic life of 11 years and straight-line depreciation, a profit before tax of $300,000. The current market value of the old roasters is $1.5 million. CVCRC’s tax rate is 45 percent, and its cost of capital after tax is 10 percent

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One year ago, Caffe Vita Coffee Roasting Co. (CVCRC) purchased three small-batch coffee roasters for...

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