Exam 12: Income Taxes and the Net Present Value Method

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 2 is:

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:

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:

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!

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:

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:

Rieben Corporation is considering a capital budgeting project that would involve investing $120,000 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 $320,000 and the annual incremental cash operating expenses would be $220,000. A one-time renovation expense of $40,000 would be required in year 3. The company's income tax rate is 30%. The company uses straight-line depreciation on all equipment. The income tax expense in year 3 is:

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 total cash flow net of income taxes in year 2 is:

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:

The Moab Corporation had sales of $300,000 and expenses of $175,000 last year. All sales were cash sales and all expenses were cash expenses. Moab Corporation's tax rate is 30%. The after-tax net cash inflow at Moab last year was:

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 net present value of the entire project is closest to:

Depew 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 $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 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!

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:

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!

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!

Sader Corporation is considering a capital budgeting project that would require an investment of $160,000 in equipment with a 4 year expected life and zero salvage value. Annual incremental sales will be $420,000 and annual incremental cash operating expenses will be $320,000. The company's income tax rate is 30% and the after-tax discount rate is 8%. The company uses straight-line depreciation on all equipment; the annual depreciation expense will be $40,000. 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:

Kellog Corporation is considering a capital budgeting project that would have a useful life of 4 years and would involve investing $160,000 in equipment that would have zero salvage value at the end of the project. Annual incremental sales would be $390,000 and annual cash operating expenses would be $260,000. The company uses straight-line depreciation on all equipment. Its income tax rate is 35%. The income tax expense in year 2 is:

Broxterman 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:

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 net present value of the entire project is closest to:

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: