MANAGERIAL ACCT.F/MANAGERS>CUSTOM<
4th Edition
ISBN: 9781307090147
Author: Noreen
Publisher: MCG/CREATE
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Chapter 8C, Problem 8C.3P
To determine
Concept Introduction:
Taxes are the amount paid by the business to the government.
Requirement-1:
To Calculate:
Taxes Paid.
To determine
Concept Introduction:
Net present value: It is the net inflow from the project which is calculated after considering the taxes and present value factor. It is calculated by reducing the net cash outflow from the net cash inflow. NPV helps in decision making regarding a project.
Taxes are the amount paid by the business to the government.
Requirement-2:
To Calculate:
Net Present Value.
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Students have asked these similar questions
Q9.
Pertinent information for two alternatives A and B is shown below. If i=10%/year and the effective income tax rate is 35%, answer the following true/false questions.
Alt. A
Alt.B
Basis, $
150,000
225,,000
Gross Income (GI), $
100,000
100,000
Operating Expense (OE), $
30,000
10,000
Salvage Value, $
15,000
22,500
MARCS Depreciation Method
ADS-6: Years Recovery Period
GDS: 5-Years Recovery Period
The TI (taxable income) of Alt. B at the end of year 1 is $45,000.
Group of answer choices
True
False
V14
Steadman Company is considering an investment in a new machine for an independent five-year project. The machine’s cost is $837,500 with no salvage value at the end of five years. Net cash inflows from the project are expected to be $252,500 annually. Steadman would depreciate the machine using the MACRS schedule, and the machine qualifies as a 5-year asset. Steadman uses a discount rate of 8%, and its tax rate is 30%.
Required: 1. Determine the after-tax net income and after-tax cash flows from the investment. Refer to Exhibit 12.4 for the 5-year MACRS deprecation schedule.
2. Determine the NPV of the project.
3. Determine the IRR of the project.
4. Determine the payback period of the project, assuming that cash flows occur evenly in each year. 5. Determine the book (accounting) rate of return using both (a) the initial investment as the denominator and (b) the average book value of the investment as the denominator.
4a4) New equipment costs $645,000 and is expected to last for four years with no salvage value. During this time, the company will use a 30% CCA rate. The new equipment will save $155,000 annually before taxes. If the company's required rate of return is 12%, determine the PVCCATS of the purchase. Assume the half-year rule applies and a tax rate of 33%.
Chapter 8C Solutions
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- H5. St. Johns River Shipyards is considering the replacement of an 8-year-old riveting machine with a new one that will increase earnings before depreciation from $24,000 to $44,000 per year. The new machine will cost $82,500, and it will have an estimated life of 8 years and no salvage value. The new riveting machine is eligible for 100% bonus depreciation at the time of purchase. The applicable corporate tax rate is 25%, and the firm's WACC is 12%. The old machine has been fully depreciated and has no salvage value. What is the NPV of the project? Negative value, if any, should be indicated by a minus sign. Round your answer to the nearest cent.arrow_forwardQ3 7d 7. XYZ Co. is evaluating whether to invest in a project with the following information: Project cost = $950,000 Project life = five years Projected number of units sold per year = 10,000 Projected price per unit = $200 Projected variable cost per unit = 150 Fixed costs per year = $150,000 Required rate of return = 15% Marginal tax rate = 35% Assume straight-line depreciation to zero over five years, and ignore the half-year rule for accounting for depreciation. d. Calculate the Degree of Operating Leverage (DOL) at the cash break-even, accounting break-even, and financial break-even sales quantities.arrow_forwardQuestion 17 Munir S/B has provided the following data concerning a proposed investment project: Initial investment.................. $861,000 Annual net cash receipts...... $271,000 Life of the project................. 5 years Salvage value...................... $129,000 The company's tax rate is 30%. For tax purposes, the straight line method will be used and capital allowances (CA)s will be claimed only over 3 years over the entire initial cost without any reduction for salvage value. The company uses a discount rate of 11%. Required: (vi) What is the NPV of the project?arrow_forward
- 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"arrow_forward13- Evaluate the following statements about NPV and IRR. I. Majed said, “NPV increases as discount rate decreases”. II. Nesrin said, “IRR increases as discount rate decreases”17- CBA Elevator costs $50,000 with an expected life of 5 years.The elevator will be depreciated on a straight-line basis to an expected salvage value of zero. The annual operating costs are $8,000.Applicable tax rate is 30% and required rate of return is 10.0%. What is the net present value of the elevator?arrow_forwardQuestion 16 Munir S/B has provided the following data concerning a proposed investment project: Initial investment.................. $861,000 Annual net cash receipts...... $271,000 Life of the project................. 5 years Salvage value...................... $129,000 The company's tax rate is 30%. For tax purposes, the straight line method will be used and capital allowances (CA)s will be claimed only over 3 years over the entire initial cost without any reduction for salvage value. The company uses a discount rate of 11%. Required: (v) What is the tax incurred on the salvage value in year 5?arrow_forward
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