Firm Z, a corporation with a 21 percent tax rate, has $100,000 to invest in year 0 and two investment choices. Investment 1 will generate $12,000 taxable cash flow annually for years 1 through 5. In year 5, the firm can sell the investment for $100,000. Investment 2 will not generate any taxable income or cash flow in years 1 through 5, but in year 5, the firm can sell Investment 2 for $165,000. Required:a1. Assuming a 6 percent discount rate, compute the NPV of Firm Z for each of the investments. Assuming a 6 percent discount rate, compute the NPV of Firm Z for each of the investments.Note: Negative amounts should be indicated by a minus sign. Round discount factor(s) to 3 decimal places and intermediatecalculations to the nearest whole dollar amount.Investment 1:Before-tax cash flowsTax (cost) or savingsAfter-tax cash flowsNPVInvestment 2:Before-tax cash flowsTax (cost) or savingsAfter-tax cash flowsNPVYear 0Year 1Year 2Year 3Year 4Year 5

Step 1:Calclate NPV for investment 1 Step 2:Calclate NPV for investment 1 Step 3:Analyse the results…

Assuming a 6 percent discount rate, compute the NPV of Firm Z for each of the investments. Note: Negative amounts should be indicated by a minus sign. Round discount factor(s) to 3 decimal places and intermediate calculations to the nearest whole dollar amount. Investment 1: Before-tax cash flows Tax (cost) or savings After-tax cash flows NPV Investment 2: Before-tax cash flows Tax (cost) or savings After-tax cash flows NPV Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Assuming a 6 percent discount rate, compute the NPV of Firm Z for each of the investments. Note: Negative amounts should be indicated by a minus sign. Round discount factor(s) to 3 decimal places and intermediate calculations to the nearest whole dollar amount. Investment 1: Before-tax cash flows Tax (cost) or savings After-tax cash flows NPV Investment 2: Before-tax cash flows Tax (cost) or savings After-tax cash flows NPV Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 14MC: This calculation determines profitability or growth potential of an investment, expressed as a...

See similar textbooks

Required:

a1. Assuming a 6 percent discount rate, compute the NPV of Firm Z for each of the investments.

Assuming a 6 percent discount rate, compute the NPV of Firm Z for each of the investments.
Note: Negative amounts should be indicated by a minus sign. Round discount factor(s) to 3 decimal places and intermediate
calculations to the nearest whole dollar amount.
Investment 1:
Before-tax cash flows
Tax (cost) or savings
After-tax cash flows
NPV
Investment 2:
Before-tax cash flows
Tax (cost) or savings
After-tax cash flows
NPV
Year 0
Year 1
Year 2
Year 3
Year 4
Year 5

Definition Definition Calculation used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. NPV is calculated as the difference between the present value of cash inflow and cash outflow. NPV is used for capital budgeting and investment planning as well as to compare similar investment alternatives.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Similar questions

This method evaluates the return of an investment by dividing the annual average income by the average investment, Select one: a. Discounted Approach b. Simple rate of return Method c. Cash Payback Method d. Internal Rate of Return Method
To determine a benchmark yielda. Calculate after tax cashflows with financingb. Calculates before tax with financingc. Calculate an unleveraged yield without taxes and financingd. Calculate an unleveraged yield with taxes In performing a cashflow analysis estimatinga. Yield before tax yield is importantb. Yield after tax is importantc. Effective Tax rate is importantd. All the above The Alternative Cash Sale Work Sheet calculatesa. Adjusted Basisb. Capital Gainc. Recapture taxd. All of the above
In the discounted cash flow (DCF) method, which of the following is the correct formula for calculating Unlevered Free Cash Flows (UFCF)? A)EBIT (1-tax rate) + Depreciation and Amortization (D&A) + Investment in Net Working Capital (\Delta NWC) + Capital Expenditure (CapEx) B)EBIT (1-tax rate) – D&A – \Delta NWC – CapEx C)EBIT (1-tax rate) + D&A – \Delta NWC + CapEx D)EBIT (1-tax rate) + D&A – \Delta NWC – CapEx E)EBIT (1-tax rate) – D&A + \Delta NWC + CapEx
.....is the after tax cash flow generated by a business minus the cost of the capital it has deployed to generate that cash flow a. Net Present Value (NPV) a. Ob Economic value added (EVA) Oc. Internal Rate of Return (IRR) d. Discounted Cash Flow
When discounting Free Cash Flow to Firm (FCFF), should the Weighted Average Cost of Capital (WACC) be pre-tax or post-tax?
Consider the following cash flows: Year Cash Flow 0 −$28,300 1 15,400 2 13,500 3 9,900 a. What is the profitability index for the cash flows if the relevant discount rate is 9 percent? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) b. What is the profitability index if the discount rate is 14 percent? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) c. What is the profitability index if the discount rate is 25 percent? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)
The accounting rate of return (also known as the unadjusted rate of return) can be calculated as: (See your Chapter 25 notes, page 2) Initial cost of the investment divided by the annual net cash inflow Initial cost of the investment minus the annual net cash inflow Average amount of the investment divided by the average annual net income Average annual net income divided by the average amount of the investment Present value of net cash inflow divided by the initial cost of the investment Annual net cash inflow minus the initial cost of the investment Future value of net cash inflow divided by the initial cost of the investment Present value of the net cash inflow minus the initial cost of the investment
Match the following notations with their uniform series names 1. uniform series arithmetic gradient |(F/A,i%,n) 2. uniform series sinking recovery |(A/F;i%,n) 3. uniform series compound amount V (A/P,i%,n) 4. uniform series sinking fund V (P/A,i%,n) 5. uniform series capital recovery 6. uniform series present worth
Can I get somehelp with this practice question please
Which of the following is a formular for calculating free cash flow. Select one: a. Interest paid - Net new borrowings b. Operating Cashflow - Net Capital Spending - Change in NWC c. EBIT- Depreciation +Taxes d. EBIT + Depreciation - Taxes e. CashFlow to bondholders - Cashflow to stockholders
Provide answer general Accounting question
6. Use the provided chart to solve this problem.