Exam 20: Income Taxes and the Net Present Value Method

Bourland Corporation is considering a capital budgeting project that would require investing $80,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $250,000 and annual incremental cash operating expenses would be $180,000. The project would also require a one-time renovation cost of $40,000 in year 3. The company's income tax rate is 30% and its after-tax discount rate is 8%. The company uses straight-line depreciation. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. The income tax expense in year 2 is:

The investment in working capital at the start of an investment project can be deducted from revenues when computing taxable income.

Annala Corporation is considering a capital budgeting project that would require investing $80,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $250,000 and annual incremental cash operating expenses would be $180,000. The project would also require an immediate investment in working capital of $20,000 which would be released for use elsewhere at the end of the project. The company's income tax rate is 30% and its after-tax discount rate is 13%. The company uses straight-line depreciation. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. The income tax expense in year 2 is:

Bellows Corporation is considering a capital budgeting project that would require investing $80,000 in equipment with a 4 year useful life and zero salvage value. Data concerning that project appear below: The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. The company's tax rate is 30% and the after-tax discount rate is 11%. Required: Determine the net present value of the project. Show your work!

Bratton Corporation has provided the following information concerning a capital budgeting project: The company uses straight-line depreciation on all equipment; the annual depreciation expense will be $40,000. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. Use Exhibit 7B-1 to determine the appropriate discount factor(s) using table. The net present value of the project is closest to:

Maurer Corporation is considering a capital budgeting project that would involve investing $200,000 in equipment with an estimated useful life of 4 years and no salvage value at the end of the useful life. Annual incremental sales from the project would be $550,000 and the annual incremental cash operating expenses would be $440,000. A one-time renovation expense of $40,000 would be required in year 3. The company's income tax rate is 30%. The company uses straight-line depreciation on all equipment. The income tax expense in year 3 is:

Stepnoski Corporation is considering a capital budgeting project that would involve investing $280,000 in equipment with an estimated useful life of 4 years and no salvage value at the end of the useful life. Annual incremental sales from the project would be $610,000 and the annual incremental cash operating expenses would be $490,000. A one-time renovation expense of $20,000 would be required in year 3. The project would require investing $30,000 of working capital in the project immediately, but this amount would be recovered at the end of the project in 4 years. The company's income tax rate is 30% and its after-tax discount rate is 11%. The company uses straight-line depreciation on all equipment. The income tax expense in year 3 is:

Bourland Corporation is considering a capital budgeting project that would require investing $80,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $250,000 and annual incremental cash operating expenses would be $180,000. The project would also require a one-time renovation cost of $40,000 in year 3. The company's income tax rate is 30% and its after-tax discount rate is 8%. The company uses straight-line depreciation. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. Use Exhibit 7B-1, to determine the appropriate discount factor(s) using the tables provided. The net present value of the entire project is closest to:

Colantro Corporation has provided the following information concerning a capital budgeting project: The company uses straight-line depreciation on all equipment. The income tax expense in year 2 is:

Morefield Corporation has provided the following information concerning a capital budgeting project: The company uses straight-line depreciation. The depreciation expense will be $10,000 per year. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. The income tax rate is 30% and the after-tax discount rate is 12%. Required: Determine the net present value of the project. Show your work!

Duma Corporation has provided the following information concerning a capital budgeting project: The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. Required: Determine the net present value of the project. Show your work!

Reye Corporation has provided the following information concerning a capital budgeting project: The company's income tax rate is 30% and its after-tax discount rate is 9%. The working capital would be required immediately and would be released for use elsewhere at the end of the project. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. The income tax expense in year 2 is:

Shilt Corporation is considering a capital budgeting project that would require investing $40,000 in equipment with a 4 year useful life and zero salvage value. Data concerning that project appear below: The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. The company's tax rate is 30% and the after-tax discount rate is 13%. Required: Determine the net present value of the project. Show your work!

Coache Corporation is considering a capital budgeting project that would require an investment of $120,000 in equipment with a 4 year useful life and zero salvage value. The annual incremental sales would be $310,000 and the annual incremental cash operating expenses would be $230,000. In addition, there would be a one-time renovation expense in year 3 of $30,000. The company's income tax rate is 30%. The company uses straight-line depreciation on all equipment. The total cash flow net of income taxes in year 3 is:

Manjarrez Corporation has provided the following information concerning a capital budgeting project: The company's income tax rate is 30% and its after-tax discount rate is 6%. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. The total cash flow net of income taxes in year 2 is:

Dunstan Corporation is considering a capital budgeting project that involves investing $450,000 in equipment that would have a useful life of 3 years and zero salvage value. The company would also need to invest $20,000 immediately in working capital which would be released for use elsewhere at the end of the project in 3 years. The net annual operating cash inflow, which is the difference between the incremental sales revenue and incremental cash operating expenses, would be $220,000 per year. The company uses straight-line depreciation and the depreciation expense on the equipment would be $150,000 per year. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. The income tax rate is 30%. The after-tax discount rate is 11%. Required: Determine the net present value of the project. Show your work!

Podratz Corporation has provided the following information concerning a capital budgeting project: The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. The total cash flow net of income taxes in year 3 is:

Yau Corporation is considering a capital budgeting project that would require investing $120,000 in equipment with a 4 year useful life and zero salvage value. Data concerning that project appear below: An investment of $20,000 in working capital would be required immediately and would be released for use elsewhere at the end of the project. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. The company's tax rate is 30% and the after-tax discount rate is 9%. Required: Determine the net present value of the project. Show your work!

Rapozo Corporation has provided the following information concerning a capital budgeting project: The expected life of the project and the equipment is 3 years and the equipment has zero salvage value. The company uses straight-line depreciation on all equipment and the depreciation expense on the equipment would be $160,000 per year. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. The net annual operating cash inflow is the difference between the incremental sales revenue and incremental cash operating expenses. Required: Determine the net present value of the project. Show your work!

Bourland Corporation is considering a capital budgeting project that would require investing $80,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $250,000 and annual incremental cash operating expenses would be $180,000. The project would also require a one-time renovation cost of $40,000 in year 3. The company's income tax rate is 30% and its after-tax discount rate is 8%. The company uses straight-line depreciation. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. The income tax expense in year 3 is: