Exam 20: Income Taxes and the Net Present Value Method

(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 3 is:

(Appendix 8C)Kostka 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 $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 $0 in year 3.The company's income tax rate is 30% and its after-tax discount rate is 9%.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)Diss Corporation is considering a capital budgeting project that involves investing $570, 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 $290, 000 per year.The company uses straight-line depreciation and the depreciation expense on the equipment would be $190, 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 6%. 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 net present value of the entire project is closest to:

(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 income tax expense in year 3 is:

(Appendix 8C)Mickolick 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. Required: Determine the net present value of the project.Show your work!

(Appendix 8C)Forehand 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.The depreciation expense will be $30, 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 10%. Required: Determine the net present value of the project.Show your work!

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

(Appendix 8C)Ferriman Corporation is considering a capital budgeting project that involves investing $600, 000 in equipment that would have a useful life of 3 years and zero salvage value.The company would also need to invest $40, 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 $300, 000 per year.The company uses straight-line depreciation 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 income tax rate is 30%.The after-tax discount rate is 10%. Required: Determine the net present value of the project.Show your work!

(Appendix 8C)Beecroft 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 $390, 000 and annual incremental cash operating expenses would be $300, 000.A one-time expense of $40, 000 for renovations would be required in year 3.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 12%. Required: Determine the net present value of the project.Show your work!

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

(Appendix 8C)Revello 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: An investment of $30, 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)Kostka 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 $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 $0 in year 3.The company's income tax rate is 30% and its after-tax discount rate is 9%.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)Voelkel 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 7%.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)Crabill 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 $230, 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)Erling 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 15%.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)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 3 is:

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

(Appendix 8C)Santistevan 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: