Exam 20: Income Taxes and the Net Present Value Method

(Appendix 8C)Hauge Corporation is considering a capital budgeting project that involves investing $750, 000 in equipment that would have a useful life of 3 years and zero salvage value.The net annual operating cash inflow, which is the difference between the incremental sales revenue and incremental cash operating expenses, would be $390, 000 per year.The project would require a one-time renovation expense of $70, 000 at the end of year 2.The company uses straight-line depreciation and the depreciation expense on the equipment would be $250, 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 13%. Required: Determine the net present value of the project.Show your work!

(Appendix 8C)Lanfranco 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 $480, 000 and annual incremental cash operating expenses would be $330, 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 $100, 000 in year 3.The company's income tax rate is 35% and its after-tax discount rate is 6%.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 3 is:

(Appendix 8C)Zucker 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!

(Appendix 8C)Bosell Corporation has provided the following information concerning a capital budgeting project: The income tax rate is 30%.The after-tax discount rate is 14%.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)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 net present value of the entire project is closest to:

(Appendix 8C)Gutshall Corporation is considering a capital budgeting project that would involve investing $240, 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 $580, 000 and the annual incremental cash operating expenses would be $430, 000.A one-time renovation expense of $70, 000 would be required in year 3.The project would require investing $10, 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 13%. The company uses straight-line depreciation on all equipment. The income tax expense in year 3 is:

(Appendix 8C)El 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 $200, 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!

(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 income tax expense in year 3 is:

(Appendix 8C)Lastufka Corporation is considering a capital budgeting project.The project would require an investment of $240, 000 in equipment with a 4 year expected life and zero salvage value.The company uses straight-line depreciation and the annual depreciation expense will be $60, 000.Annual incremental sales would be $500, 000 and annual incremental cash operating expenses would be $390, 000.The company's income tax rate is 35% and the after-tax discount rate is 8%.The company takes income taxes into account in its capital budgeting.Assume cash flows occur at the end of the year except for the initial investments. The net present value of the project is closest to:

(Appendix 8C)Glasco 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 net present value of the entire project is closest to:

(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 3 is:

(Appendix 8C)Helfen 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 13%.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)Shinabery 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 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 3 is:

(Appendix 8C)Starrs 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)The investment in working capital at the start of an investment project can not be deducted from revenues when computing taxable income.

(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 3 is:

(Appendix 8C)A capital budgeting project's incremental net income computation for purposes of determining incremental tax expense does not include immediate cash outflows for initial investments in equipment.

(Appendix 8C)Leamon Corporation is considering a capital budgeting project that would require an investment of $240, 000 in equipment with a 4 year useful life and zero salvage value.The annual incremental sales would be $630, 000 and the annual incremental cash operating expenses would be $480, 000.In addition, there would be a one-time renovation expense in year 3 of $40, 000.The company's income tax rate is 35%.The company uses straight-line depreciation on all equipment. The total cash flow net of income taxes in year 3 is:

(Appendix 8C)Strathman 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:

(Appendix 8C)Dekle 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 net present value of the entire project is closest to: