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PROBLEM 13C-3 Income Taxes and
Lander Company has an opportunity to pursue a capital budgeting project with a five-year time horizon. After careful study, Lander estimated the following costs and revenues for the project:
Cost of equipment needed………………………………….. $250,000
Repair the equipment in two years………………………….. $18,000
Annual revenues and costs:
Sales revenues………………………………………………… $350,000
Variable expenses…………………………………………….. $180,000
Fixed out-of-pocket operating costs………………………….. $80,000
The piece of equipment mentioned above has a useful life of five years and zero salvage value. Lander uses straight-line
Required:
- Calculate the annual income tax expense for each of years 1 through 5 that will arise as a result of this investment opportunity.
- Calculate the net present value of this investment opportunity.
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