Accounting question? ? BrightWave Technologies is launching a new projectthat will increase annual sales by $400,000 and cashexpenses by $70,000. The project requires an initialinvestment of $600,000 and will be depreciated usingthe straight-line method to a zero book value over a 6-year life. The company has a marginal tax rate of 35%.What is the yearly value of the depreciation tax shield?

Step 1: Define Depreciation Tax ShieldThe Depreciation Tax Shield represents the tax savings a…

Answered: BrightWave Technologies is launching a…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 2P

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The Rodriguez Company is considering an average-risk investment in a mineral water spring project that has an initial after-tax cost of 170,000. The project will produce 1,000 cases of mineral water per year indefinitely, starting at Year 1. The Year-1 sales price will be 138 per case, and the Year-1 cost per case will be 105. The firm is taxed at a rate of 25%. Both prices and costs are expected to rise after Year 1 at a rate of 6% per year due to inflation. The firm uses only equity, and it has a cost of capital of 15%. Assume that cash flows consist only of after-tax profits because the spring has an indefinite life and will not be depreciated. a. What is the present value of future cash flows? (Hint: The project is a growing perpetuity, so you must use the constant growth formula to find its NPV.) What is the NPV? b. Suppose that the company had forgotten to include future inflation. What would they have incorrectly calculated as the projects NPV?
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Sunrise Furniture Inc. wants to upgrade the existing production process. The cost-cutting project can potentially reduce expenses by $665,000 per year. The project will require an initial investment in fixed assets of $1,268,000 that will be depreciated using the straight-line method to a zero book value over the 5-year life of the project. The company has a marginal tax rate of 23 percent. What is the depreciation tax shield at the end of year 2? A. $58,328 B. $411,400 C. $94,622 D. $253,600
Planet Enterprises is purchasing a $9.6 million machine. It will cost $48,000 to transport and install the machine. The machine has a depreciable life of five years using straight-line depreciation and will have no salvage value. The machine will generate incremental revenues of $4.1 million per year along with incremental costs of $1.1 million per year. Planet's marginal tax rate is 30% . You are forecasting incremental free cash flows for Daily Enterprises. What are the incremental free cash flows associated? The free cash flow for year 0 will be ? The free cash flow for years 1-5 will be ?
Daily Enterprises is purchasing a $10.4 million machine. It will cost $46,000 to transport and install the machine. The machine has a depreciable life of five years using straight-line depreciation and will have no salvage value. The machine will generate incremental revenues of $4.4 million per year along with incremental costs of $1.5 million per year. Daily's marginal tax rate is 21%. You are forecasting incremental free cash flows for Daily Enterprises. What are the incremental free cash flows associated with the new machine? The free cash flow for year 0 will be $10,446,000. (Round to the nearest dollar.) The free cash flow for years 1-5 will be $ (Round to the nearest dollar.)
Daily Enterprises is purchasing a $10.4 million machine. It will cost $46,000 to transport and install the machine. The machine has a depreciable life of five years using straight-line depreciation and will have no salvage value. The machine will generate incremental revenues of $4.4 million per year along with incremental costs of $1.5 million per year. Daily's marginal tax rate is 21%. You are forecasting incremental free cash flows for Daily Enterprises. What are the incremental free cash flows associated with the new machine? The free cash flow for year 0 will be $ (Round to the nearest dollar.)
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Slithering Snakes is considering adding a new product line that is expected to increase annual sales by $355,000 and cash expenses by $277,000. The Initial investment will require $385,000 in fixed assets that will be depreciated using the straight-line method to a zero book value over the five-year life of the project. The company has a marginal tax rate of 21 percent. What is the annual value of the depreciation tax shield. Multiple Choice $77,000 $15,223 $16,170 $19,260 $18,180
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Tasty Bakery Co. is considering a new product line. In order to manufacture the new product, the company must purchase $3 million in capital assets with expected economic life of 6 years and no salvage value. Annual pre-tax cash flows are expected to equal to $800,000 and Tasty Bakery's discount rate is 10%. Income tax rate is 30% Should this project be undertaken? Why or why not?

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