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- A firm has the opportunity to invest in a project having an initial outlay of $20,000. Net cash inflows (before depreciation and taxes) are expected to be $5,000 per year for five years. The firm uses the straight-line depreciation method with a zero salvage value and has a (marginal) income tax rate of 40 percent. The firms cost of capital is 12 percent. Compute the IRR and the NPV. Should the firm accept or reject the project?A company with a 34% marginal income tax rate is considering the purchase of a $75,000 piece of equipment that is classified as 3-year property in the MACRS depreciation schedule. The equipment will provide the following estimated benefits in Year 1-5. Year Before-Tax Cash Flow 0 −$75,000 1 $10,000 2 $25,000 3 $50,000 4 $15,000 If the company purchases the equipment, how much income tax will it owe in Year 3? Group of answer choices $13,223 $17,000 $25,500 No income tax is owedBlue Inc. is considering producing a short-lived fad item, which it estimates will have a project life of three years. The only fixed assets it will need to purchase is some machinery which costs $120,000, plus $10,000 to modify it for this project's use. The machinery will be depreciated using the MACRS 5-year property class schedule, and Blue estimates that the machinery could be sold at the end of the third year for $70,000. In addition to expenditures on fixed assets, this project would cause the firm's cash needs to increase by $15,000 and additional raw materials inventory will go up by $5,000, both at Time 0. It also estimates that by the end of Year 1, accounts receivable will rise by $6,000. The new product's sales revenues are expected to be $90,000 each year. Total costs excluding depreciation are estimated to be $30,000. The company's marginal tax rate is 34 percent, and the firm estimates is overall WACC to be 16.00 percent. Inflation is zero. What are the project's NPV…
- Show the solutions in a step-by-step manner. 1. A certain building has a salvage value of P1,000,000 after 40 years. Annual depreciation is P2,000,000. Using the Straight Line Method, how many years should you sell the building for P30,000,000? 2. A machine costs P2,500,000. At the end of its economic life of six years, its salvage value is P800,000. Using the Sum of the Years Digit Method of Depreciation, what will be its book value for the first year? Prepare a depreciation schedule. plz answer dont answer by pen paperConsider the following information for year 1 of a project using equipment that had an initial cost of $100,000, and an estimated salvage value of $10,000 at disposal: BTCF = $16,000MACRS 10-year property classState & Federal Combined Income Tax Rate: 45% What is the ATCF for year 1?Given: Before -Tax Cash Flow (BT-CF) for Kal Tech Systems in 2012 for an equipment that will be depreciated using the SL method with salvage value of $10,000. Year 0 1 2 3 4 5 BT-CF -$120,000 32,000 32,000 32,000 32,000 32,000 Market value - $36,000 What is the after-tax return if the company is in the 34% income tax bracket? The incremental tax rate is 34%. Also, it is known that the before-tax return is 16.65% Group of answer choices 9.65% 11.29% 10.16% 10.99%
- Certain new machinery used in manufacturing of motor vehicles, when placed in service, is estimated to cost $275,000. It is expected to reduce net annual operating expenses by $56,000 per year for 10 years and to have a $41,000 MV at the end of the 10th year. Assume that the firm is in the federal taxable income bracket of $335,000 to $10,000,000 and that the state income tax rate is 7.5%. State income taxes are deductible from federal taxable income. This machinery is to be depreciated using the MACRS (GDS). Develop the BTCFs and ATCFs and compute for the respective PWs at EOY 0 using an MARR of 12%.A car industry invested $20,000 in cars with a 3-year useful life. The cars will have no salvage value, as the cost to remove it will equal its scrap value. The uniform annual benefits from the cars are $12,000. For a combined 25% income tax rate, and 100% bonus depreciation, compute the after-tax net present worth (NPW) using MARR if 10%.A special-purpose milling machine was purchased four years ago for $20,000. It was estimatedat that time that this machine would have a life of10 years, a salvage value of $1,000, and a cost ofremoval of $1,500. These estimates are still good.This machine has annual operating costs of $2,000,and its current book value is $13,000 (based on“alternative MACRS,” a straight-line depreciationwith a half-year convention with zero salvage value).If the machine is retained for its entire 10-year life,the remaining annual depreciation schedule would be$2,000 for years 5 through 10. A new machine that ismore efficient will reduce operating costs to $1,000,but it will require an investment of $12,000. The lifeof the new machine is estimated to be six years with asalvage value of $2,000. The new machine would fallinto the five-year MACRS property class. An offerof $6,000 for the old machine has been made, andthe purchaser would pay for removal of the machine.The firm’s marginal tax rate is 40%, and…
- A trucking company computes depreciation on its vehicles by a mileage basis.Suppose a delivery truck has a cost of $20.000. a salvage value of $2.000. andan estimated useful life of 200.000 miles. Determine the depreciation rateper mile. (a) $0.08(b) $0.09(c) $0.10(d) $0.11A small manufacturing company has an estimated annual taxable income of $195,000. Due to an increase in business, the company is considering purchasing a new machine that will generate additional (before-tax) annual revenue of $80,000 over the next five years. The new machine requires an investment of $100,000, which will be depreciated under the five-year MACRS method.(a) What is the increment in income tax caused by the purchase of the new machine in tax year 1?(b) What is the incremental tax rate associated with the purchase of the new equipment in year 1?Green Management Company is consideringthe acquisition of a new eighteen-wheeler.• The truck’s base price is $80,000, and it will costanother $20,000 to modify it for special use by thecompany.• This truck falls into the MACRS five-year class. Itwill be sold after three years for $30,000.• The truck purchase will have no effect on revenues, but it is expected to save the firm $45,000per year in before-tax operating costs, mainly inleasing expenses.• The firm’s marginal tax rate (federal plus state) is40%, and its MARR is 15%.(a) Is this project acceptable, based on the mostlikely estimates given in the problem?(b) If the truck’s base price is $95,000, what wouldbe the required savings in leasing so that the project would remain profitable?