Exam 20: Income Taxes and the Net Present Value Method

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

(Appendix 8C)Stars 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:

(Appendix 8C)Gloden Corporation has provided the following information concerning a capital budgeting 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 35% and the after-tax discount rate is 12%. 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 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 net present value of the entire project is closest to:

(Appendix 8C)Stortz 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 $290, 000 and annual incremental cash operating expenses would be $210, 000.A one-time expense of $30, 000 for renovations would be required in year 3.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 35% and the after-tax discount rate is 14%. 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 total cash flow net of income taxes in year 2 is:

(Appendix 8C)Hothan 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 $60, 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 15%. Required: Determine the net present value of the project.Show your work!

(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 2 is:

(Appendix 8C)Holzner 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 $270, 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)Shaddock 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.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 12%. Required: Determine the net present value of the project.Show your work!

(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 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 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 total cash flow net of income taxes 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 total cash flow net of income taxes in year 3 is:

(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 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 income tax expense in year 3 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 3 is:

(Appendix 8C)Pilarz Corporation has provided the following information concerning a capital budgeting project: The company uses straight-line depreciation.The depreciation expense will be $20, 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 8%. 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 2 is: