Exam 20: Income Taxes and the Net Present Value Method

(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 3 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 net present value of the entire project is closest to:

(Appendix 8C)Under the simplifying assumptions made in the text, to calculate the amount of income tax expense associated with an investment project, first calculate the incremental net income earned during each year of the project and then multiply each year's incremental net income by the tax rate.

(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 3 is:

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

(Appendix 8C)Trammel Corporation is considering a capital budgeting project that would require investing $280, 000 in equipment with an expected life of 4 years and zero salvage value.Annual incremental sales would be $650, 000 and annual incremental cash operating expenses would be $450, 000.The project would also require a one-time renovation cost of $100, 000 in year 3.The company's income tax rate is 30% and its after-tax discount rate is 7%.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:

(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 2 is:

(Appendix 8C)Battaglia Corporation is considering a capital budgeting project that would require investing $240, 000 in equipment with an expected life of 4 years and zero salvage value.Annual incremental sales would be $620, 000 and annual incremental cash operating expenses would be $460, 000.The project would also require a one-time renovation cost of $80, 000 in year 3.The company's income tax rate is 30% and its after-tax discount rate is 7%.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 net present value of the entire project is closest to:

(Appendix 8C)Pulkkinen 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 2 is:

(Appendix 8C)A company anticipates incremental net income (i.e. , incremental taxable income)of $50, 000 in year 4 of a project.The company's tax rate is 30% and its after-tax discount rate is 12%.The present value of this future cash flow is closest to:

(Appendix 8C)Brodigan 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 $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 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)Credit 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 15%.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)Zangari 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)Stack 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 $200, 000 and annual incremental cash operating expenses would be $150, 000.The project would also require a one-time renovation cost of $10, 000 in year 3.The company's income tax rate is 35% and its after-tax discount rate is 7%.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)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 net present value of the entire project is closest to:

(Appendix 8C)Hohlfeld 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.Annual incremental sales would be $240, 000 and annual incremental cash operating expenses would be $180, 000.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!

(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 net present value of the entire project is closest to:

(Appendix 8C)Darnold Corporation has provided the following information concerning a capital budgeting project: The equipment will have a 4 year expected life and zero salvage value.The company's income tax rate is 35% and the after-tax discount rate is 9%.The company uses straight-line depreciation on all equipment;the annual depreciation expense will be $10, 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)Flippo Corporation is considering a capital budgeting project that would require investing $160, 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 6%. Required: Determine the net present value of the project.Show your work!