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
Question 1 How is depreciation treated in the indirect method of estimating project cash flows? O Include the cash amount of depreciation in the project's cash flows each year Add back depreciation in arriving at profit before tax, then deduct after tax has been deducted O Deduct depreciation in arriving at profit before tax, then add back after tax has been deducted O Ignore completely as it is à non-cash expense A Moving to another question will save this response. Mactook/
To get a project's after-tax cash flow, you must subtract depreciation as though it is an expense from the taxable income and then add it back again as though it is a positive cash flow to get the final net cash flow.a. Trueb. False
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
1) When converting accounting profits to cash flows, we broadly deal with depreciation and working capital as follows: Depreciation Working capital A) add add at the start of the project,deduct at the end. B) deduct add at the start of the project,deduct at the end. C) add deduct at the start of the project,add at the end. D) deduct deduct at the start of the project,add at the end.
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.
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.
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?
We are analyzing a project and have gathered the following data. Based on this data, what is the average accounting rate of return? The project's assets will be depreciated using straight-line depreciation to a zero book value over the life of the project. Year Cash Flow Net Income 0 $285,000 n/a 1 $83,650 $12,400 2 $92,850 $21,600 3 $94,350 $23,100 4 $93,250 $22,000
Use this formula to caluculate terminal cash flow: Terminal cash flows at the end of project’s life = After-tax proceeds from sale of asset – after-tax proceeds from sale of old asset (if any) + recovery of working capital The after-tax proceeds from sale of old asset (if any) being 350,000

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