Firm E must choose between two business opportunities. Opportunity 1 will generate an $14,240 deductible loss in year $8,900taxable income in year 1, and $35,600 taxable income in year 2. Opportunity 2 will generate $9,900 taxable income in year O and$8,900 taxable income in years 1 and 2. The income and loss reflect before-tax cash inflow and outflow. Firm E uses a 5 percentdiscount rate and has a 40 percent marginal tax rate over the three-year period. Use Appendix A and Appendix B.Required:a1. Complete the tables below to calculate NPV.a2. Which opportunity should Firm E choose?b1. Complete the tables below to calculate NPV. Assume Firm E's marginal tax rate over the three-year period is 15 percent.b2. Which opportunity should Firm E choose?c1. Complete the tables below to calculate NPV. Assume Firm E's marginal tax rate is 40 percent in year O but only 15 percent in years 1and 2.c2. Which opportunity should Firm E choose?

The net cash flows can be found by deducting taxes from the taxable income (assuming that there is…

Answered: Firm E must choose between two business…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Assume that today is December 31, 2022, and the following information applies to XavierAirlines:-After-tax operating income [EBIT (1 - T)] for the just ended year is $900 million.-The depreciation expense for the just ended year was $140 million.-The capital expenditure for the just ended year was $225 million.-There was no change in net operating working capital from the previous year.-Analysts estimate that Xavier’s free cash flow is expected to grow on average, at a rate of8% per year for the next 5 years after which growth is expected to moderate to 4% at aconstant rate.-The weighted average cost of capital (WACC) for Xavier is 10%.-The market value of the company's debt is $2.875 billion.-Xavier has 300 million shares of stock are outstanding.Using the corporate valuation model approach, what should be:a. The value of Xavier Airlines today (the firm)?b. The value of Xavier Airlines’ Common Equity?c. The intrinsic value of Xavier’s stock price today?
Currently Abby is charged $4,569,333 Depreciation on the Income Statement of Andrews. Andrews is planning for an increase in this depreciation. On the financial statements of Andrews this will do which of the following? Select : 1 Save Answer Decrease Net Cash from Operations on the Cash Flow Statement. Increase Net Cash from Operations on the Cash Flow Statement. Have no impact on the Net Cash from Operations as depreciation appears in both Cash Flow and the Income Statement. Decrease Net Cash from Operations on the Income Statement.
Slime Corp. maintains its accounting records on the cash basis but restates it financial statements to accrual basis. Iniwan had P600,000 in cash basis pre-tax income for 2020. The following information pertains to Iniwan’s operations for the year ended December 31, 2019 and 2020: Accounts receivable: 2020- P400,000; 2019- P200,000 Accounts payable: 2020- P150,000; 2019- P300,000 Under accrual method, what is the income before taxes should Slime report in its December 31, 2020?
Hh2.
Your pro forma income statement shows sales of $1,006,000, cost of goods sold as $488,000, depreciation expense of $97,000, and taxes of $105,250 due to a tax rate of 25%. What are your pro forma earnings? What is your pro forma free cash flow? Complete the pro forma income statement below: (Round to the nearest dollar.) Sales Cost of Goods Sold Gross Profit Depreciation EBIT Taxes (25%) Earnings $ $ $ $ $ $ $
ou are working with an accounting firm. Sussie, who is representing Suss Co, needs advice about depreciating assets. She asks; what are depreciating assets? What are the different ways to calculate the declining value of depreciating assets? Furthermore, Suss Co has aggregated turnover of $ 2 billion. In December 2021, Suss Co purchased a machine for $4m, which was commenced immediately for an income-producing purpose. What tax does the Suss Co claim?
Calculate the operating cash flow for Initech. (Assume that depreciation is tax deductible.) Initech Corp. Income Statement ($000's) Revenue Cost of Goods Sold SG&A Depreciation Expense. EBIT Interest Expense Income Before Taxes Taxes Net Income: $100,000 64,798 16,202 4,739 14,260 7,230 7,030 2,108 $4,922
Consider the following information: Effective gross income (EGI) was $40 million; the deprecation deduction was $9 million; debt service was $17million, of which $6 million was principal; $1.5 million was put into a fund for future renovations; operating expenses were $14 million. Compute the taxable income from operations.
In 2019, Fragile Express Delivery spent $28.9 million on capital expenditures, experienced a decrease in net working capital (including cash) equal to $72.8 million, and realized $26 million in depreciation. Fragile Express Delivery Company’s earnings before interest and taxes (EBIT) was $725 million. Assuming Fragile Express Delivery’s tax rate is 37%, what is Fragile Express Delivery’s unlevered free cash flow for 2019
For the past year, Kayla, Incorporated, has sales of $47,747, interest expense of $4,400, cost of goods sold of $17,884, selling and administrative expense of $12,431, and depreciation of $7,430. If the tax rate is 25 percent, what is the operating cash flow? Multiple Choice $16,032 $14,659 $11,632 $5,602 $4,202
Elliott has the following capital gain and loss transactions for 2020. Short-term capital gain 1,500 Short-term capital loss (3,600) Long-term capital gain (28%) 12,000 Long-term capital gain (25%) 4,800 Long-term capital gain (15%) 6,000 Long-term capital loss (28%) (4,500) Long-term capital loss (15%) (9,000) After the capital gain and loss netting process, what is the amount and character of Elliott’s gain or loss?
Benson, Inc., has sales of $44830, costs of $14,370, depreciatior and interest expense of $2,390. The tax rate if 23 percent. What is the operating cash flow, or OCF?

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