Betatech has some slightly obsolete equipment that still has a book value of $280,000 on their balance sheet. Theycan sell the equipment now for $210,000, and they would recover $40,000 in working capital. Their tax rate is 21%.If they sell the equipment, what would be the terminal cash flow?O $264,700O $268,900O $205,900O $228,900O $165,900

Terminal cash flow would include recovery of working capital, tax saving on capital loss, and…

Answered: Betatech has some slightly obsolete…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 6P

See similar textbooks

Similar questions

Wansley Lumber is considering the purchase of a paper company, which would require an initial investment of $300 million. Wansley estimates that the paper company would provide net cash flows of $40 million at the end of each of the next 20 years. The cost of capital for the paper company is 13%. Should Wansley purchase the paper company? Wansley realizes that the cash flows in Years 1 to 20 might be $30 million per year or $50 million per year, with a 50% probability of each outcome. Because of the nature of the purchase contract, Wansley can sell the company 2 years after purchase (at Year 2 in this case) for $280 million if it no longer wants to own it. Given this additional information, does decision-tree analysis indicate that it makes sense to purchase the paper company? Again, assume that all cash flows are discounted at 13%. Wansley can wait for 1 year and find out whether the cash flows will be $30 million per year or $50 million per year before deciding to purchase the company. Because of the nature of the purchase contract, if it waits to purchase, Wansley can no longer sell the company 2 years after purchase. Given this additional information, does decision-tree analysis indicate that it makes sense to purchase the paper company? If so, when? Again, assume that all cash flows are discounted at 13%.
Shao Airlines is considering the purchase of two alternative planes. Plane A has an expected life of 5 years, will cost $100 million, and will produce net cash flows of $30 million per year. Plane B has a life of 10 years, will cost $132 million, and will produce net cash flows of $25 million per year. Shao plans to serve the route for only 10 years. Inflation in operating costs, airplane costs, and fares are expected to be zero, and the company’s cost of capital is 12%. By how much would the value of the company increase if it accepted the better project (plane)? What is the equivalent annual annuity for each plane?
The Berndt Corporation expects to have sales of 12 million. Costs other than depreciation are expected to be 75% of sales, and depreciation is expected to be 1.5 million. All sales revenues will be collected in cash, and costs other than depreciation must be paid for during the year. Berndts federal-plus-state tax rate is 40%. Berndt has no debt. a. Set up an income statement. What is Berndts expected net income? Its expected net cash flow? b. Suppose Congress changed the tax laws so that Berndts depreciation expenses doubled. No changes in operations occurred. What would happen to reported profit and to net cash flow? c. Now suppose that Congress changed the tax laws such that, instead of doubling Berndts depreciation, it was reduced by 50%. How would profit and net cash flow be affected? d. If this were your company, would you prefer Congress to cause your depreciation expense to be doubled or halved? Why?
Tubby Toys estimates that its new line of rubber ducks will generate sales of $7.30 million, operating costs of $4.30 million, and a depreciation expense of $1.30 million. If the tax rate is 30%, what is the firm’s operating cash flow? (Do not round your intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)
company is considering taking a project that will produce $12 million of revenue per year. Cash expenses will be $5 million, and depreciation expenses will be $1 million per year. If the company takes that project, then it will reduce the cash revenues of an existing project by $2 million. What is the free cash flow on the project, per year, if the company is in the 40 percent marginal tax rate? $2.4 million $3.4 million $4.6 million $5.0 million
Southern Tours is considering acquiring Holiday Vacations. Management believes Holiday Vacations can generate cash flows of $185,000, $225,000, and $345,000 over the next three years, respectively. After that time, they feel the business will be worthless. If the desired rate of return is 12 percent, what are the maximum Southern Tours should pay today to acquire Holiday Vacations? a. 503,098 b. 538,615 c. $545,920 d. $590,110
Gumamela Company is considering replacing a machine with one that will save P50,000 per year in cash operating costs and has P20,000 more depreciation expense per year than the existing machine. The tax rate is 40%. Buying the new machine will increase annual net cash flows of the company by Select one: a. P20,000 b. P30,000 c. P12,000 d. P38,000 Old equipment with a book value of P15,000 will be replaced by new equipment with a purchase price of P50,000, exclusive of freight charges of P2,000. The market value of the old equipment is P11,000. Repair costs of P2,000 can be avoided if the new equipment is acquired. Assume a tax rate of 35%. What is the initial (net)investment of the project? Select one: a. P33,800 b. 52,000 c. P38,300 d. P39,700
Gluon Inc. is considering the purchase of a new high pressure glueball. It can purchase the glueball for $120,000 and sell its old low-pressure glueball, which is fully depreciated, for $20,000. The new equipment has a 10-year useful life and will save $28,000 a year in expenses before tax. The opportunity cost of capital is 12%, and the firm’s tax rate is 21%. What is the equivalent annual saving from the purchase if Gluon can depreciate 100% of the investment immediately. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
You are contemplating the replacement of an old printing machine with a new model costing $63,000. The old machine, which originally cost $40,000, has 6 years of expected life remaining and the current book value of $14,000 versus the current market value of $21,000. The firm's corporate tax rate is 24 percent. If the company sells the old machine at the market value, what is the initial after-tax cash outlay for the new printing machine purchase?
Gluon Incorporated is considering the purchase of a new high pressure glueball. It can purchase the glueball for $200,000 and sell its old low-pressure glueball, which is fully depreciated, for $36,000. The new equipment has a 10-year useful life and will save $44,000 a year in expenses before tax. The opportunity cost of capital is 8%, and the firm’s tax rate is 21%. What is the equivalent annual saving from the purchase if Gluon can depreciate 100% of the investment immediately. Note: Do not round intermediate calculations. Round your answer to 2 decimal places. What is the Equivalent Annual Savings?
Gluon Inc. is considering the purchase of a new high pressure glueball. It can purchase the glueball for $220,000 and sell its old low-pressure glueball, which is fully depreciated, $40,000. The new equipment has a 10-year useful life and will save $48,000 a year in expenses. The opportunity cost of capital is 10%, and the firm's tax rate is 21%. What is the equivalent annual saving from the purchase if Gluon can depreciate 100% of the investment immediately.
Tubby Toys estimates that its new line of rubber ducks will generate sales of $6.40 million, operating costs of $3.40 million, and a depreciation expense of $0.40 million. If the tax rate is 40%, what is the firm’s operating cash flow? Note: Do not round your intermediate calculations. Enter your answer in millions rounded to 2 decimal places. Firms Operating Cash Flow = ______ Million

SEE MORE QUESTIONS

Recommended textbooks for you

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Cornerstones of Cost Management (Cornerstones Ser…

Accounting

ISBN:

9781305970663

Author:

Don R. Hansen, Maryanne M. Mowen

Publisher:

Cengage Learning

Intermediate Financial Management (MindTap Course…

Finance

ISBN:

9781337395083

Author:

Eugene F. Brigham, Phillip R. Daves

Publisher:

Cengage Learning

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Cornerstones of Cost Management (Cornerstones Ser…

Accounting

ISBN:

9781305970663

Author:

Don R. Hansen, Maryanne M. Mowen

Publisher:

Cengage Learning

Intermediate Financial Management (MindTap Course…

Finance

ISBN:

9781337395083

Author:

Eugene F. Brigham, Phillip R. Daves

Publisher:

Cengage Learning

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Corporate Fin Focused Approach

Finance

ISBN:

9781285660516

Author:

EHRHARDT

Publisher:

Cengage

SEE MORE TEXTBOOKS