Exam 20: Income Taxes and the Net Present Value Method

(Appendix 8C)Schlagel 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 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 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)Skolfield 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 $590, 000 and annual incremental cash operating expenses would be $470, 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 project would also require a one-time renovation cost of $30, 000 in year 3.The company's income tax rate is 30% 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)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 2 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 net present value of the entire project is closest to:

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

(Appendix 8C)Menghini 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.Annual incremental sales would be $300, 000 and annual incremental cash operating expenses would be $240, 000.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!

(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 income tax expense in year 2 is:

(Appendix 8C)Alopecia Hair Tonic Corporation is considering an investment project that is expected to generate net cash inflows of $65, 000 per year for 4 years.The only initial investment funds required will be a $150, 000 increase in working capital.This will be released at the end of the 4 years.Alopecia's after-tax cost of capital is 12% and its tax rate is 30%.The net present value of this investment project is closest to:

(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 3 is:

(Appendix 8C)Bourret 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 project is closest to:

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

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

(Appendix 8C)A company needs an increase in working capital of $20, 000 in a project that will last 4 years.The company's tax rate is 30% and its after-tax discount rate is 10%.The present value of the release of the working capital at the end of the project is closest to:

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

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

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