After-Tax Cash Flows: Final DisposalAt the end of the life of the project, there are two major sources of cash: (1) release of working capital and (2) preparation, removal, and sale of theequipment (salvage value effects). Any working capital committed to a project is released at this point. The release of working capital is a cash inflowwith no tax consequences. Disposing of an asset associated with a project also has cash consequences. At times, an asset may have a market value atthe end of its life. The selling price less the cost of removal and cleanup produces a gross cash inflow. See Step 3 for how to calculate the tax effectsassociated with the disposal of an asset.Apply the ConceptsA company invested $180,000 of working capital at the beginning of a project. At the end of the project, an asset has a selling price of $120,000. Itsremoval and cleanup costs total $30,000. The book value of the asset is $15,000. The tax rate is 40 percent.Required:Calculate the after-tax expected cash flow at the end of the project's life: $ 240,000 XFeedback

The after-tax expected cash flow considers two factors:Release of working capital: This is the cash…

Answered: After-Tax Cash Flows: Final Disposal At…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 7QTD

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A characteristic of the payback method is that it: (See your Chapter 25 notes, page 9) Uses accrual accounting inflows in the numerator of the calculation Uses the estimated expected useful life of the asset in the denominator of the calculation Incorporates cash flows received after the payback period has been reached Is based on accounting income Incorporates the time value of money Ignores total project profitability
The operating cash flows of a project: includes tax. none of the others is correct are equal to the project's total projected net income. decrease when net working capital increases. are unaffected by the depreciation method selected.
Which of the following would be considered a terminal cash flow? A. The expected salvage value of the asset B. Any tax payments or refunds associated with the salvage value of the asset C. Recapture of any investment in working capital that was included as an incremental cash outlay D. All of the above
In the payback method, depreciation is added back to net operating income when computing the annual net cash flow. True or False The internal rate of return is computed by finding the discount rate that equates the present value of a project's cash outflows with the present value of its cash inflows. True or False The internal rate of return method assumes that the cash flows generated by the project are immediately reinvested elsewhere at a rate of return that equals the company's cost of capital. True or False An increase in the expected salvage value at the end of a capital budgeting project will increase the internal rate of return for that project. True False The minimum required rate of return is the discount rate that makes the net present value of the project equal to zero. True False The production budget is typically prepared before the direct materials budget. True False The selling and administrative budget is typically prepared…
In estimating "after-tax incremental operating cash flows" for a project, you should include all of the following except __________. a. changes in working capital resulting from the project, net of spontaneous changes in current liabilities b. changes in costs due to a general appreciation in those costs c. the amount (net of taxes) that we could realize from selling a currently unused building of ours that we intend to use for our project d. costs that have previously been incurred that are unrecoverable
which of the following should not be included in the cash flows for project analysis? Opportunity costs side effects or erosion sunk costs operating cash flows for all years The initial investment in net working capital
Which of the following cash flows are not considered in the calculation of the annual cash-flow for a capital investment proposal? Incremental costs. O Taxes. O Depreciation on the project. Proceeds from selling an old asset which is being replaced by a new asset. Change in revenue.
Net working capital:A.can be ignored in project analysis because any expenditure is normally recouped by the end of the project.B.requirements generally, but not always, create a cash inflow at the beginning of a project.C.expenditures commonly occur at the end of a project.D.is frequently affected by the additional sales generated by a new project.E.is the only expenditure where at least a partial recovery can be made at the end of a project.
Discussion:Is the added precision from including taxes and depreciation in calculating project cash flows worth the effort? Should they be included in the calculations? Please discuss and justify your answer.
What name is given to the time value of money technique that discounts the after-tax cash flows for a project over its life to time period zero using the company’s minimum desired rate of return? a. net present value method b. capital rationing methodc. payback method d. average rate of return method e. accounting rate of return method
Which of the following statements is true regarding the payback period? Multiple Choice It measures the length of time that it takes for a project to recover its initial cost from the discounted net cash inflows that it genera It measures the length of time that it takes for a project to recover its initial cost from the net cash inflows that it generates. It measures the length of time that it takes for a project to recover its initial cost from the incremental net operating income that It measures the length of time that it takes for a project to recover its initial cost from the discounted incremental net operating it generates.
Changes in the net working capital: A. can affect the cash flows of a project every year of the project's life. B. only affect the initial cash flows of a project. C. are included in project analysis only if they represent cash outflows. D. are generally excluded from project analysis due to their irrelevance to the total project. E. affect the initial and the final cash flows of a project but not the cash flows of the middle years. Can you help me explain the answer?

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