. Ryan Alcoa, a new associate at Jonas Partners, has compiled the following data for a potential investment for the firm: Investment: $300,000 Annual sales revenues = $180,000 Annual cash costs = $80,000 4-year useful life,no salvage value  Jonas Partners faces a 30% tax rate on income and is aware that the tax authorities will only permit straightline depreciation for tax purposes. The firm has an after-tax required rate of return of 8%. Q. Based on net present value considerations, is this a project Jonas Partners would want to take?

Q: Your Company is considering a new project that will require $530,000 of new equipment at the start…

A: Cost of project = $ 530,000 Closing book value = $ 229000 Life = 7 Years Annual depreciation =…

Q: . Ryan Alcoa, a new associate at Jonas Partners, has compiled the following data for a potential…

A: Working note: Calculate the residual income in each year if the project were adopted: Annual…

Q: An company uses a technology which it purchased for $15 million. Operating costs are $2 million per…

A: IRR stands for internal rate of return and refers to a method that is used for analyzing the…

Q: Regal Industries is replacing a grinder purchased 5 years ago for $15,000 with a new one costing…

A: solution : given : calculation of book value of old equipment cost      = $15,000 life        = 15…

Q: A firm with a 34% combined federal/state tax rate is considering purchasing equipment that falls in…

A: Depreciation rates from 5 years MACRS depreciation table: Year 1 Year 2 Year 3 Year 4 Year 5…

Q: Your company is considering a new project that will require $10,000 of new equipment at the start of…

A: The present value is the value of the sum received at time 0. It is the current value of the sum…

Q: Bau Long-Haul, Inc., is considering the purchase of a tractor-trailer that would cost $376,960,…

A: Internal rate of return is a rate of return where the present value of cash inflows equates with the…

Q: National Co. is planning to purchase a piece of equipment that will reduce annual cash expenses over…

A: The profitability index is the proportion of PV of cash inflows to PV of cash outflows.

Q: Lou Lewis, the president of Lewisville Company has asked you to give him an analysis of the best use…

A: Net Present Value - An investment proposal's net present value can be calculated by adding up all of…

Q: Sunrise Furniture Inc. wants to upgrade the existing production process. The cost-cutting project…

A: Depreciation is a non-cash expense. Although it is excluded while computing cashflows for capital…

Q: Bau Long-Haul, Inc., is considering the purchase of a tractor-trailer that would cost $363,510,…

A: The internal rate of return is the annual growth rate that an investment project is expected to…

Q: You are asked to evaluate the following project for a corporation with profitable ongoing…

A: Net present value is a capital budgeting techniques which makes the decision making process easier…

Q: How will the tax authority’s decision affect the after-tax cost of the kiln? The tax rate is 25%,…

A: Tax shield if installation cost is currently expensed = tax*installation cost = 25%*55,000 = 13.74…

Q: Wonderful Company thinks it may need a new color printing press. The press will cost $500,000 but…

A: NPV means net PV of benefits which will be arises in the coming years. It can be computed by taking…

Q: XYZ Company plans to invest $1 million in a new plant which is expected to produce a uniform annual…

A: Net Present Value: It is the difference  between the current worth of money inflows  and outflows…

Q: The Wildcat Oil Company is trying to decide whether to lease or buy a new computer- assisted…

A: A lease payment is a payment made under the terms of a written lease agreement between the owner of…

Q: . Ryan Alcoa, a new associate at Jonas Partners, has compiled the following data for a potential…

A: As this question is only asked, it is assumed that you have answers for the residual incomes…

Q: . Ryan Alcoa, a new associate at Jonas Partners, has compiled the following data for a potential…

A: Prepare a statement showing residual income: Residual income can be calculated as difference between…

Q: A company is now at the end of the final year of a project. The equipment originally cost $28,000,…

A: The after tax salvage value is calculated as sale proceeds less tax on gain on sale

Q: The Webster Corp. is planning construction of a new shipping depot for its single  manufacturing…

A: Net Present Value: The net present value is the excess of the present value of cash inflows over the…

Q: Your company is considering a new project that will require $1 million of new equipment at the start…

A: Given, Cost of new equipment is $1 million Life of equipment is 10 years Depreciated value $150,000…

Q: Blue Company, is trying to assess the feasibility of acquiring an accounting system for $10,000,000.…

A: Book rate of return is calculated to identify potential profitability of the project in which an…

Q: irm is considering renewing its equipment to meet increased demand for its product. The cost of…

A: Incremental operating cash flows refer to the added cash flow arising out of the operating…

Q: Buffalo Environmental Service expects to generate a taxable income of$350,000 from its regular…

A: Concept: The tax rate which is applied on the additional income of an individual is referred as…

Q: Consider the following case of Happy Turtle Transportation Company: Suppose Happy Turtle…

A: Step 1: Calculate the net income as follows: Step 2: Calculate the return on equity as follows:…

Q: you have been asked by the president of your company to evaluate the proposed acquisition of a new…

A: The computation of operating cash flow for year 2: Hence, the operating cash flow for year 2 is…

Q: You are asked to evaluate the following project for a corporation with profitable ongoing…

A: Net present value is the value of cash inflows earned from a project after deducting the value of…

Q: educe its salary cash expense by $2,000,000 per year. The system has a five-year life, it will be…

A: Net Present Value: It is a measure of profitability in absolute dollar terms and is estimated by…

Q: 1 Blatt Packing Co. is examining the investment in a new air-conditioning system in its factory.…

A: Formula: Net Present Value (NPV)=Present Value of Cash inflows-Present Value of Cash outflows

Q: St. Johns River Shipyards is considering the replacement of an 8-year-old riveting machine with a…

A: NPV is the method under which cash inflows that are received during the lifetime of a project are…

Q: Win Corporation is considering the purchase of a P100,000 machine that i expected to result in a…

A: Accounting rate of return: The accounting rate of return is the percentage of return of a particular…

Q: Your firm is considering an investment in luxury cars for its livery service between Oxford and CVG…

A: The question is based on the concept of calculation of net present value (NPV).The net cash flow…

Q: Daily Enterprises is purchasing a $10.1 million machine. It will cost $52,000 to transport and…

A: Calculation of  incremental cash flows of the project : a) Depreciation: Depreciation for each year…

Q: Bau Long-Haul, Inc., is considering the purchase of a tractor-trailer that would cost $376,960,…

A: The calculation of cumulative present value factor has been made as follows: Cumulative present…

Q: Calculate the firm's annual cash flows associated with the new project.

A: Computation of annual depreciation:

Q: The Lumber Yard is considering adding a new product line that is expected to increase annual sales…

A: Depreciation Tax shield = Tax rate x Depreciation Expense Depreciation Expense = Cost - Salvage…

Q: Jabba-Dabba-Doo Inc. renovated its warehouses exactly two years ago at a cost of $3.5 million. The…

A: Depreciation tax shield is a tax reduction method where the depreciation amount is deducted from…

Q: Compute the NPV of the project if the discount rate is 9%.

A: As stated in the question, the cost of machine $600 is fully tax deductible. Hence the complete tax…

Q: Tasty Bakery Co. is considering a new product line. In order to manufacture the new product, the…

A: If the present value of cash flows is more than the amount of current investment, then the project…

Q: You are considering adding a new product to one of your firm’s existing product lines which will…

A: Free cash flow to the firm is net cash inflow for the year. Free cashflow of unlevered firm means…

Q: Marston Manufacturing Company is considering a project that requires an investment in new equipment…

A: Computation of after tax cost of new equipment, initial net investment, and total termination cash…

Q: St. Johns River Shipyards is considering the replacement of an 8-year-old riveting machine with a…

A: Net present value refers to the present value of the series of cash flows that occur at different…

Q: Wonderful Company thinks it may need a new color printing press. The press will cost $500,000 but…

A: a) Computation:

Q: Universal Exports Inc. is a small company and is considering a project that will require $650,000 in…

A: Earnings before interest and taxes: Earnings before interest, depreciation and taxes are the…

Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.