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Seaworthy Corporation Seaworthy Corporation is considering the purchase of a new ocean-going vessel that could potentially reduce labor costs of its operation by a considerable margin

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Seaworthy Corporation

Seaworthy Corporation is considering the purchase of a new ocean-going vessel that could potentially reduce labor costs of its operation by a considerable margin. The new ship would cost $500,000 and would be fully depreciated by the straight-line method over 10 years. At the end of 10 years, the ship will have no value and will be scuttled. Seaworthy Company’s cost of capital is 12 percent, and its marginal tax rate is 40 percent.

1. Refer to Seaworthy Corporation. What is the present value of the depreciation tax benefit of the new ship? (Round to the nearest dollar.) Present value tables or a financial calculator are required.

a.    $113,004

1. 1. 2. $282,510
      3. $169,506
      4. $200,000
2. Refer to Seaworthy Corporation. If the ship produces equal annual labor cost savings over its 10-year life, how much do the annual savings in labor costs need to be to generate a net present value of $0 on the project? (Round to the nearest dollar.) Present value tables or a financial calculator are required.
   1. 1. $68,492
      2. $114,154
      3. $88,492
      4. $147,487