A company wants to set up a new office in a country where the corporate tax rate is: 15% of first $50,000 profits, 25% of next $25,000, 34% of next $25,000, and 39% of everything over $100,000. Executives estimate that they will have gross revenues of $500,000, total costs of $300,000, $30,000 in allowable tax deductions, and a one-time business start-up credit of $8000. What is taxable income for the first year, and how much should the company expect to pay in taxes?

A company wants to set up a new office in a country where the corporate tax rate is: 15% of first $50,000 profits, 25% of next $25,000, 34% of next $25,000, and 39% of everything over $100,000. Executives estimate that they will have gross revenues of $500,000, total costs of $300,000, $30,000 in allowable tax deductions, and a one-time business start-up credit of $8000. What is taxable income for the first year, and how much should the company expect to pay in taxes?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 6P

See similar textbooks

Similar questions

A company has purchased a new piece of machinery for $100,000. The estimate it will result in annual cost savings of $15,000 per year, this will increase every year by $500. The machinery will last for 8 years, at which time it will be sold for $7,000. What is the company's BEFORE tax rate of return? The company estimates a federal tax rate of 21%. What is their AFTER tax rate of return?
You are asked to evaluate the following project for a corporation profitable ongoing operations. The required investment on January 1 of this year is $29,000. The firm will depreciate the investment at a CCA rate of 20 percent. The firm is in the 40 percent tax bracket. The price of the product on January 1 year 1 is $104 per unit. That price will stay constant in real terms. Labour costs is $14.00 per hour on January 1 year 1. Labour costs will increase by 1 percent per year in real terms after year 1. Energy costs will be $7.20 per physical unit on January 1 year 1; energy cost will increase at 2.5 percent per year in real terms after year 1. The inflation rate is 4.1 percent. The company sells all of its production in the year produced; revenue is received and costs are paid at year-end: Physical production, in units Labour input, in hours Energy input, physical units Year 1 150 1,080 180 Year 2 300 1,080 180 Year 3 350 1,080 180 Year 4 150 1,080 180 The risk-free nominal discount…
You are considering adding a microbrewery onto one of your firm's existing restaurants. This will entail an investment of $40,000 in new equipment. The new equipment falls under asset class 43 and has a capital cost allowance (CCA) rate of 30%. If your firm's marginal corporate tax rate is 35%, then what is the value of the microbrewery's CCA tax savings in the first year of operation? a) $2,100 b) $14,000 c) $4,200 d) $12,000
Southern Timber Company expects to earn $10 million in EBIT in the coming year. After that, its EBIT is expected to grow by 4% per year in perpetuity. Southern Timber is currently an unlevered firm with a cost of capital of 6%. The corporate tax rate is 30%. A panel of professional financial experts indicates that the company can enjoy a tax shield benefit of $20 million in firm value if the company changes its capital structure by allowing a certain amount of debt. What would be the value of Southern Timber Company if it decides to undertake the capital structure suggested by these financial experts?
Antonio Melton, the chief executive officer of Melton Corporation, has assembled his top advisers to evaluate an investment opportunity. The advisers expect the company to pay $500,000 cash at the beginning of the investment and the cash inflow for each of the following four years to be the following. Note that the annual cash inflows below are net of tax. Year 1 $105,000 Year 2 $120,000 Year 3 $150,000 Mr. Melton agrees with his advisers that the company should use a desired rate of return of 7 percent to compute net present value to evaluate the viability of the proposed project. (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Year 4. $225,000 Required a. Compute the net present value of the proposed project. Should Mr. Melton approve the project? b.&c. Shawn Love, one of the advisers, is wary of the cash flow forecast and she points out that the advisers failed to consider that the depreciation on equipment used in this project will be tax…
You are asked to evaluate the following project for a corporation with profitable ongoing operations, The required investment on January 1 of this year is $37,000. The firm wilt depreciate the investment at a CCA rate of 20 percent. The firm is in the 40 percent tax bracket. The price of the product on January 1 will be $102 per unit. That price will stay constant in real terms Labour costs will be $18.20 per hour on January 1. They will increase at 15 percent per year in real terms. Energy costs will be $8.70 per physical unit on January 1: they will increase at 2.5 percent per year in real terms. The inflation rate is 3.4 percent. Revenue is received and costs are paid at year- end Physical production, in units Labour input, in hours Energy input, physical units Year 1 Year 2 Year 3 Year 4 230 1,240 180 230 510 1,240 180 460 1,240 180 1,240 The risk-free nominal discount rate is 8.3 percent. The real discount rate for costs and revenues is 5.3 percent. Calculate the NPV of this…
Antonio Melton, the chief executive officer of Melton Corporation, has assembled his top advisers to evaluate an investment opportunity. The advisers expect the company to pay $500,000 cash at the beginning of the investment and the cash inflow for each of the following four years to be the following. Note that the annual cash inflows below are net of tax. Year 1 Year 2 Year 3 Year 4 $105,000 $120,000 $150,000 $225,000 Mr. Melton agrees with his advisers that the company should use a desired rate of return of 7 percent to compute net present value to evaluate the viability of the proposed project. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required a. Compute the net present value of the proposed project. Should Mr. Melton approve the project? b.&c. Shawn Love, one of the advisers, is wary of the cash flow forecast and she points out that the advisers failed to consider that the depreciation on equipment used in this project will be tax deductible.…
The Best Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated here. The corporate tax rate is 22 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project. Year 0 Year 1 Year 2 Year 3 Year 4 Investment $ 26,500 Sales revenue $ 13,600 $ 15,200 $ 16,600 $ 13,100 Operating costs 3,000 3,150 4,400 3,000 Depreciation 6,625 6,625 6,625 6,625 Net working capital spending 310 210 245 160 ? a. Compute the incremental net income of the investment for each year. (Do not round intermediate calculations.) b. Compute the incremental cash flows of the investment for each year. (Do not round intermediate calculations. A negative…
You are purchasing an equipment for $ 200,000 for your new store. Assume the store has no other expenses or revenues other than those associated with this project. You are going to purchase an additional $ 12,500 of inventory for production with the new equipment and set up a cash account with a $ 2,000 balance. The inventory purchase will result in an account payable of $ 4,500. The firm's tax rate is 20%. What is the net cash flow at time zero?
. The Indiana Company has had a great year financially and they are wanting to better understand the amount of free cash flows that they have to invest back into the company. After having sales of $1 million, total costs of $500,000, interest expense of $50,000, depreciation of $100,000, and Capex of $90,000, what is the amount of free cash flow for the company? Assume a 35% tax rate and only use the information that is provided above. a. $220,000 b. $270,000 c. $237,500 d. $335,000 SOOK 50-100
Antonio Melton, the chief executive officer of Rooney Corporation, has assembled his top advisers to evaluate an investment opportunity. The advisers expect the company to pay $401,000 cash at the beginning of the investment and the cash inflow for each of the following four years to be the following. Note that the annual cash inflows below are net of tax. Year 1 $84,000 Year 2 $99,000 Year 3 $130,000 Year 4 $184,000 Mr. Melton agrees with his advisers that the company should use a desired rate of return of 10 percent to compute net present value to evaluate the viability of the proposed project. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required a. Compute the net present value of the proposed project. Should Mr. Melton approve the project? b.&c. Shawn Love, one of the advisers, is wary of the cash flow forecast and she points out that the advisers failed to consider that the depreciation on equipment used in this project will be tax deductible.…
Antonio Melton, the chief executive officer of Solomon Corporation, has assembled his top advisers to evaluate an investment opportunity. The advisers expect the company to pay $418,000 cash at the beginning of the investment and the cash inflow for each of the following four years to be the following. Note that the annual cash inflows below are net of tax. Year 1 $86,000 Year 2 $97,000 Year 3 $122,000 Year 4 $186,000 Mr. Melton agrees with his advisers that the company should use a desired rate of return of 10 percent to compute net present value to evaluate the viability of the proposed project. (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Required a. Compute the net present value of the proposed project. Should Mr. Melton approve the project? b.&c. Shawn Love, one of the advisers, is wary of the cash flow forecast and she points out that the advisers failed to consider that the depreciation on equipment used in this project will be tax…