Chevron Phillips has put into place new laboratory equipment for the production of chemicals; the cost is $1,800,000 installed. CP borrows 45% of all capital needed and the borrowing rate is 12.5%. In the first year, 25% of the principal borrowed will be paid back. The throughput rate for in-proess test samples has increased the capacity of the lab, saving a net of $X per year. In this first year, depreciation is $360,000 and taxable income is $328,000. Solve, a. What is the “gross income” or annual savings $X? b. Determine the income tax for the first year assuming a income-tax rate of 25%. c. What is the after-tax cash flow for the first year?
Chevron Phillips has put into place new laboratory equipment for the production of chemicals; the cost is $1,800,000 installed. CP borrows 45% of all capital needed and the borrowing rate is 12.5%. In the first year, 25% of the principal borrowed will be paid back. The throughput rate for in-proess test samples has increased the capacity of the lab, saving a net of $X per year. In this first year, depreciation is $360,000 and taxable income is $328,000. Solve, a. What is the “gross income” or annual savings $X? b. Determine the income tax for the first year assuming a income-tax rate of 25%. c. What is the after-tax cash flow for the first year?
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 12P
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Chevron Phillips has put into place new laboratory equipment for the production of chemicals; the cost is $1,800,000 installed. CP borrows 45% of all capital needed and the borrowing rate is 12.5%. In the first year, 25% of the principal borrowed will be paid back. The throughput rate for in-proess test samples has increased the capacity of the lab, saving a net of $X per year. In this first year,
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