General accounting Clemson Software is considering a new project with the data shownbelow. The required equipment has a 3-year tax life, after which it willbe worthless, and it will be depreciated by the straight-line method over3 years. Revenues and other operating costs are expected to be constantover the project's 3-year life. What is the project's Year 1 cash flow? (Donot round the intermediate calculations and round the final answer tothe nearest whole number.)Equipment cost (depreciable basis) $100,000Straight-line depreciation rate 33.333%Sales revenues, each year$60,000Operating costs (excl. depr.)$25,000Tax rate35.0%

Step 1: Define Depreciation - A Tax-Saving ExpenseA depreciation tax shield can be a powerful tool…

Answered: Clemson Software is considering a new…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 2PA: Jasmine Manufacturing is considering a project that will require an initial investment of $52,000...

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National Integrated Systems (NIS), a global provider of heating and air conditioning is planning a project whose data is provided below. The project’s equipment has a 3 year tax life after which its salvage value will be zero. The machinery will be depreciated on a straight line basis over three years. Revenues and other operating costs are expected to be constant over the project’s life. What is the project’s cash flow in Year 1? Equipment Cost = $130,000Depreciation rate = 33.33%Annual Sales Revenue= $120,000Operating Costs (ex Depreciation) = $50,000 Tax Rate = 35%
A 3-year project requires the purchase of a machine (fixed asset) for $6,000 in Year 0. In Year 2, the project is expected to have net income of $2,000 and the depreciation rate is 45%. The tax rate is 35%. There is no interest expense. What is the Operating Cash Flow in Year 2? Enter your answer without the dollar sign and round your final answer to the nearest whole number (nearest dollar).
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ANB has a project with $185211 in depreciation expense each year, no changes in net working capital each year, and initial capital expenditures of $461696. The project is expected to last for two years. If the discount rate is 0.080, what constant level of unlevered net income results in a NPV of 0 for this project?
Blossom Company is considering a long-term investment project called ZIP. ZIP will require an investment of $132,940. It will have a useful life of 4 years and no salvage value. Annual cash inflows would increase by $80,600, and annual cash outflows would increase by $41,500. Compute the cash payback period. (Round answer to 2 decimal places, e.g. 10.52.) Cash payback period years.
What is the NPV of the mall project? The project would require an initial investment in equipment of $93,600.00 and would last for either 3 years or 4 years (the date when the project ends will not be known until it happens and that will be when the equipment stops working in either 3 years from today or 4 years from today). The first annual operating cash flow of $46,600.00 is expected in 1 year, and annual operating cash flows of $46,600.00 per year are expected each year until the project ends in either 3 years or 4 years. In 1 year, the project is expected to have an after-tax terminal value of $81,000.00. The cost of capital for this project is 15.32 percent. $65,052.88 (plus or minus $10) -$18,149.69 (plus or minus $10) $42,758.51 (plus or minus $10) $17,048.63 (plus or minus $10) None of the above is within $10 of the correct answer
The Horizon Company will Invest $84,000 in a temporary project that will generate the following cash inflows for the next three years. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Year Cash Flow $22,000 34,000 58,000 7 3 The firm will also be required to spend $10,000 to close down the project at the end of the three years. a. Compute the net present value if the cost of capital is 8 percent. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.) Net present value b. Should the investment be undertaken? Ⓒ Yes O No
Wayne Company is considering a long-term investment project called ZIP. ZIP will require an investment of $137,956. It will have a useful life of 4 years and no salvage value. Annual cash inflows would increase by $79,900, and annual cash outflows would increase by $42,000. Compute the cash payback period. (Round answer to 2 decimal places, e.g. 10.52.) Cash payback period _________? enter the Cash payback period in years rounded to 2 decimal places years.
A project with a life of 5 years is expected to provide annual sales of $250,000 and costs of $165,000. The project will require an investment in equipment of $475,000, which will be depreciated on a straight-line method over the life of the project. You feel that both sales and costs are accurate to +/-10 percent. The tax rate is 21 percent. What is the annual operating cash flow for the best-case scenario? Multiple Choice $101,250 $75,900 $88,600 $64,100 $119,885
The Horizon Company will invest $79,000 in a temporary project that will generate the following cash inflows for the next three years. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Cash Flow $ 22,000 35,000 42,000 The firm will also be required to spend $21,000 to close down the project at the end of the three years. a. Compute the net present value if the cost of capital is 9 percent. Note: Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places. Year 1 2 3 Net present value b. Should the investment be undertaken? O No O Yes
A project that costs $3,400 to install will provide annual cash flows of $1,000 for each of the next 6 years. a). What is the NPV if the discount rate is 14%? (Solved, answer is NPV=388.67) b). How high can the discount rate be before you would reject the project? (Do not round intermediate calculations. Enter answers as a percent rounded to 2 decimal places.)
Giant Machinery Ltd is considering to invest in one of the two following Projects to buy a newequipment. Each project will last 5 years and have no salvage value at the end. The company’s requiredrate of return for all investment projects is 9%. The cash flows of the projects are provided below. project 1 project 2 cost 175000 185000 future cash flows year 1 76000 87000 year 2 83000 78000 year 3 67000 69000 year 4 65000 65000 year 5 55000 57000 Required:a) Identify which project should the company accept based on NPV method. (Note: Pleaseround up the result of each calculation of PV to 2 decimal places only for simplification)b) Identify which project should the company accept based on simple pay back method if thepayback criteria is maximum 2 years. c) Which project Giant Machinery should choose if two methods are in conflict.

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