Exam 20: Income Taxes and the Net Present Value Method

(Appendix 8C)Foucault Corporation has provided the following information concerning a capital budgeting project: The company's income tax rate is 35% and its after-tax discount rate is 12%.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:

(Appendix 8C)Deninno Corporation is considering a capital budgeting project that would require investing $240, 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 9%. Required: Determine the net present value of the project.Show your work!

(Appendix 8C)Freiman Corporation is considering investing in a project that would have a 4 year expected useful life.The company would need to invest $160, 000 in equipment that will have zero salvage value at the end of the project.Annual incremental sales would be $390, 000 and annual cash operating expenses would be $270, 000.In year 3 the company would have to incur one-time renovation expenses of $70, 000.Working capital in the amount of $10, 000 would be required.The working capital would be released for use elsewhere at the end of the project.The company uses straight-line depreciation on all equipment. The income tax expense in year 2 is:

(Appendix 8C)Mitton Corporation is considering a capital budgeting project that would require investing $160, 000 in equipment with an expected life of 4 years and zero salvage value.Annual incremental sales would be $440, 000 and annual incremental cash operating expenses would be $320, 000.The project would also require a one-time renovation cost of $0 in year 3.The company's income tax rate is 35% and its after-tax discount rate is 12%.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 total cash flow net of income taxes in year 2 is:

In capital budgeting computations, discounted cash flow methods:

(Appendix 8C)Milliner 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 $60, 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. The net present value of the project is closest to:

(Appendix 8C)Rieben Corporation is considering a capital budgeting project that would involve investing $120, 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 $320, 000 and the annual incremental cash operating expenses would be $220, 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:

(Appendix 8C)Prudencio 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 2 is:

(Appendix 8C)Folino Corporation is considering a capital budgeting project that would require investing $120, 000 in equipment with an expected life of 4 years and zero salvage value.Annual incremental sales would be $380, 000 and annual incremental cash operating expenses would be $300, 000.The project would also require an immediate investment in working capital of $10, 000 which would be released for use elsewhere at the end of the project.The project would also require a one-time renovation cost of $30, 000 in year 3.The company's income tax rate is 35% and its after-tax discount rate is 15%.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 total cash flow net of income taxes in year 2 is:

(Appendix 8C)Boch Corporation has provided the following information concerning a capital budgeting project: 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 total cash flow net of income taxes in year 2 is:

(Appendix 8C)Amel Corporation has provided the following information concerning a capital budgeting project: 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 total cash flow net of income taxes in year 3 is:

(Appendix 8C)Prudencio 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 income tax expense in year 2 is:

(Appendix 8C)Gouker 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 2 is:

(Appendix 8C)Brogden 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 10%.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:

(Appendix 8C)Broxterman Corporation has provided the following information concerning a capital budgeting project: The company uses straight-line depreciation on all equipment. The total cash flow net of income taxes in year 3 is:

(Appendix 8C)Pont 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 10%.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 total cash flow net of income taxes in year 2 is:

(Appendix 8C)Sader Corporation is considering a capital budgeting project that would require an investment of $160, 000 in equipment with a 4 year expected life and zero salvage value.Annual incremental sales will be $420, 000 and annual incremental cash operating expenses will be $320, 000.The company's income tax rate is 30% and the after-tax discount rate is 8%.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. The net present value of the project is closest to:

(Appendix 8C)Lasater Corporation has provided the following information concerning a capital budgeting project: The company's tax rate is 35%.The company's after-tax discount rate is 15%.The project would require an investment of $10, 000 at the beginning of the project.This working capital would be released for use elsewhere at the end of the project.The company uses straight-line depreciation on all equipment. The total cash flow net of income taxes in year 2 is:

(Appendix 8C)Gayheart 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.The annual incremental sales would be $260, 000 and the annual incremental cash operating expenses would be $190, 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 2 is:

(Appendix 8C)Mitton Corporation is considering a capital budgeting project that would require investing $160, 000 in equipment with an expected life of 4 years and zero salvage value.Annual incremental sales would be $440, 000 and annual incremental cash operating expenses would be $320, 000.The project would also require a one-time renovation cost of $0 in year 3.The company's income tax rate is 35% and its after-tax discount rate is 12%.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: