Skyline Industries is analyzing a capital investment project. The new equipment is required by the project and will cost $350,000 with $25,000 installation and transportation costs. A five-year MACRS depreciation schedule (20%, 32%, 19.2%, 11.52%, 11.52%, 5.76%) with the half-year convention will be employed. Existing equipment, with a book value of $200,000 and an estimated market value of $100,000, will be sold immediately after installation of the new equipment. Annual incremental pre-tax cash inflows are estimated at $175,000. Skyline’s effective income tax rate is 40%. After-tax operating cash flow for the first year of the project would amount to A. $135,000. B. $133,000. C. $175,000. D. $105,000.
Skyline Industries is analyzing a capital investment project. The new equipment is required by the project and will cost $350,000 with $25,000 installation and transportation costs. A five-year MACRS depreciation schedule (20%, 32%, 19.2%, 11.52%, 11.52%, 5.76%) with the half-year convention will be employed. Existing equipment, with a book value of $200,000 and an estimated market value of $100,000, will be sold immediately after installation of the new equipment. Annual incremental pre-tax cash inflows are estimated at $175,000. Skyline’s effective income tax rate is 40%. After-tax operating cash flow for the first year of the project would amount to A. $135,000. B. $133,000. C. $175,000. D. $105,000.
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 17E: Postman Company is considering two independent projects. One project involves a new product line,...
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Skyline Industries is analyzing a capital investment project. The new equipment is required by the project and will cost $350,000 with $25,000 installation and transportation costs. A five-year MACRS depreciation schedule (20%, 32%, 19.2%, 11.52%, 11.52%, 5.76%) with the half-year convention will be employed. Existing equipment, with a book value of $200,000 and an estimated market value of $100,000, will be sold immediately after installation of the new equipment. Annual incremental pre-tax cash inflows are estimated at $175,000. Skyline’s effective income tax rate is 40%. After-tax operating cash flow for the first year of the project would amount to
A. $135,000.
B. $133,000.
C. $175,000.
D. $105,000.
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