4. Calculating OCF [LO1] Consider the following income statement: Sales $747,300 582,600 Depreciation 89,300 Costs EBIT Taxes (22%) Net income ? Fill in the missing numbers and then calculate the OCF. What is the depreciation tax shield?

4. Calculating OCF [LO1] Consider the following income statement: Sales $747,300 582,600 Depreciation 89,300 Costs EBIT Taxes (22%) Net income ? Fill in the missing numbers and then calculate the OCF. What is the depreciation tax shield?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

4. Calculating OCF [LO1] Consider the following income
statement:
Sales
$747,300
582,600
Depreciation 89,300
Costs
EBIT
Taxes (22%)
?
Net income
?
Fill in the missing numbers and then calculate the OCF.
What is the depreciation tax shield?

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Based on the given information, how much is the weighted average cost of capital? *
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pm.5
A4 Please solve branch B by hand on a piece of paper, please
Part 1 of 2 Points: 0 of 2 Save Suppose a firm's tax rate is 25%. K a. What effect would a $9.13 million operating expense have on this year's earnings? What effect would it have on next year's earnings? b. What effect would a $11.35 million capital expense have on this year's earnings if the capital expenditure is depreciated at a rate of $2.27 million per year for five years? What effect would it have on next year's earnings? a. What effect would a $9.13 million operating expense have on this year's earnings? What effect would it have on next year's earnings? (Select all the choices that apply.) A. A $9.13 million operating expense would be immediately expensed, increasing operating expenses by $9.13 million. This would lead to a reduction in taxes of 25% x $9.13 million = $2.28 million. B. A $9.13 million operating expense would be immediately expensed, increasing operating expenses by $9.13 million. This would lead to an increase in taxes of 25% x $9.13 million = $2.28 million. C.…
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Question 10 (Ignore income taxes in this problem.) Z Company has gathered the following data on a proposed investment project: Investment in equipment.................................. $150,000 Annual cash flows........................................... $40,000 Salvage value of equipment............................. $0 Life of the equipment....................................... 10 years Required rate of return.................................... 10% The company uses straight-line depreciation on all equipment. Required: (iii) Calculate the ARR
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Question 11 (Ignore income taxes in this problem.) Z Company has gathered the following data on a proposed investment project: Investment in equipment.................................. $150,000 Annual cash flows........................................... $40,000 Salvage value of equipment............................. $0 Life of the equipment....................................... 10 years Required rate of return.................................... 10% The company uses straight-line depreciation on all equipment. Required: (iv) Is this a viable project?

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