Problem 9-6 Calculating Salvage Value [LO 2] Consider an asset that costs $690,000 and is depreciated straight-line to zero over its 9- year tax life. The asset is to be used in a 6-year project; at the end of the project, the asset can be sold for $171,000. If the relevant tax rate is 21 percent, what is the aftertax cash flow from the sale of this asset? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Aftertax salvage value
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- 6.10 Calculating Salvage Value An asset used in a 4-year project falls in the 5-year MACRS class for tax purposes. The asset has an acquisition cost of $7.6 million and will be sold for $1.4 million at the end of the project. If the tax rate is 21 percent, what is the after tax salvage value of the asset?Ch 6. Seeing Red has a new project that will require fixed assets of $935,000, which will be depreciated on a 5-year MACRS schedule. The annual depreciation percentages are 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, and 11.52 percent, respectively. The company has a tax rate of 28 percent. What is the depreciation tax shield for Year 3? Round to the nearest cent and format answer as "XX,XXX.XX"Problem 9-9 Calculating Project OCF [LO 2] Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2,950,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $3,190,000 in annual sales, with costs of $2,210,000. If the tax rate is 21 percent, what is the OCF for this project?
- Ch. 6. Pencil and Paper, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $1.37 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life, after which it will be worthless. The project is estimated to generate $1,255,000 in annual sales, with costs of $435,000. The tax rate is 21 percent and the required return is 10 percent. What is the project’s NPV? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) Format as "XXX,XXX.XX"7.2 Project Beta is a 6-year project which requires an initial outlay of $4,000. This outlay will be depreciated using straight-line depreciation over the life of the project. It will generate incremental revenue of $2000 per year and incremental costs (excluding depreciation) of $500. The tax rate is 30%. What is the annual depreciation amount? a. $867 b. $667 c. $1533 d. $1333 Clear my choiceQ) 1 Blatt Packing Co. is examining the investment in a new air-conditioning system in its factory. The initial cost is £100,000, and it is expected to sell the system for scrap after five years at a salvage value of £20,000. The equipment will be depreciated on a straight-line basis for tax purposes. The tax rate is 40 per cent, with no tax payable on the salvage value. The investment requires an increase in net working capital of £5,000 at the outset. There is no increase in revenues expected, but there is expected to be a saving of £40,000 per year in before-tax operating costs. a. Estimate the cash flows involved in the project. b. If the firm’s cost of capital is 8 per cent, should the firm invest in the system? c. How would the decision above be affected if the firm’s bond rating was reduced and its cost of capital changed to 10 per cent?
- man.2 An asset used in a 4-year project falls in the 5-year MACRS class for tax purposes. The asset has an acquisition cost of $8,900,000 and will be sold for $2,440,000 at the end of the project. If the tax rate is 23 percent, what is the aftertax salvage value of the asset? (MACRS schedule) (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)shj.8 A company is considering the purchase of a new production machine and is not sure whether the project fulfills its investment objective. The company requires that all investments must have a positive net present value (NPV). The machine costs $100,000 and will be depreciated for tax purposes on a straight-line basis over its useful life of five years. The machine has a $0 salvage value. The project will generate $30,000 of pretax operating cash inflow annually. The company has a 25% effective income tax rate and uses a 10% discount rate for investment projects. Which of the following represents the NPV of the project? Select one: a. $(14,707) b. $(33,661) c. $13,724 d. $4,2466.1 A project requires the purchase of new equipment at a cost of $12,000, which will be depreciated over the life of the asset. A further $8000 spent on transport and installation will be added to the purchase price of the equipment for depreciation purposes, and $1000 will be spent on advertising and other operating expenditure to get the project up and running. Excluding depreciation, what is the amount that will be claimed as a tax deduction in Year 1? a. $21,000 b. $1,000 c. $20,000 d. $9,000
- 7.2 Project Beta is a 6-year project which requires an initial outlay of $4,000. This outlay will be depreciated using straight-line depreciation over the life of the project. It will generate incremental revenue of $2000 per year and incremental costs (excluding depreciation) of $500. The tax rate is 30%. What is the project's annual tax payable? a. $50 b. $583 c. $250 d. $117 Clear my choiceexercise 8-25 (LO. 4) On April 5, 2020, Kinsey places in service a new automobile that cost $60,000. He does not elect § 179 expensing, and he elects not to take any available additional first-year depreciation. The car is used 70% for business and 30% for personal use in each tax year. Kinsey chooses the MACRS 200% declining-balance method of cost recovery (the auto is a 5-year asset). Assume the following luxury automobile limitations: year 1: $10,100; year 2: $16,100. Compute the total depreciation allowed for: 2020: $ 2021: $Exercise 8-25 (LO. 4) On April 5, 2020, Kinsey places in service a new automobile that cost $60,000. He does not elect § 179 expensing, and he elects not to take any available additional first-year depreciation. The car is used 70% for business and 30% for personal use in each tax year. Kinsey chooses the MACRS 200% declining-balance method of cost recovery (the auto is a 5-year asset). Click here to access the depreciation table to use for this problem. Assume the following luxury automobile limitations: year 1: $10,100; year 2: $16,100. Compute the total depreciation allowed for: 2020: $fill in the blank 1 2021: $fill in the blank 2 Exhibit 8.5 MACRS Straight-Line Depreciation for Personal Property Assuming Half-Year Convention For Property Placed in Service after December 31, 1986 Other Recovery Years Last Recovery Year MACRS Class % First Recovery Year Years % Year % 3-year 16.67 2–3 33.33 4 16.67 5-year 10.00 2–5 20.00 6…