Florida Car Wash is considering a new project whose data are shown below. The equipment to be used has a 3-year tax life. Under the new tax law, the equipment is eligible for 100% bonusdepreciation, so it will be fully depreciated at t = 0. At the end of the project's 3 - year life, it would have zero salvage value. No change in net operating working capital (NOWC) would be requiredfor the project. Revenues and operating costs will be constant over the project's life, and this is just one of the firm's many projects, so any losses on it can be used to offset profits in other units. Ifthe number of cars washed declined by 40% from the expected level, by how much would the project's NPV change? (Hint: Note that cash flows are constant at the Year 1 level, whatever that levelis.) Do not round the intermediate calculations and round the final answer to the nearest whole number. WACC 10.0% Equipment cost $48,000 Number of cars washed 3,000 Average price per car$24.00 Fixed op. cost $8,000 Variable op. cost/unit (i.e., VC per car washed) $5.375 Tax rate 25.0% a. - $55,581 b. -$43,210 c. -$35,717 d. -$45,854 e. - $41,686

Net Present Value NPV is the technique of capital budgeting used to evaluate the profitability and…

Answered: Florida Car Wash is considering a new…

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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ACDC Company is considering the installation of a new machine that costs $150,000. The machine is expected to lead to net income of $44,000 per year for the next 5 years. Using straight-line depreciation, $0 salvage value, and an effective income tax rate of 28%, determine the after-tax rate of return for this investment. If the company’s after-tax MARR rate is 12%, would this be a good investment or not?
Do not copy from other source. Blue Sky Ltd. is considering the replacement of one of its older machines that is still capable of doing the job but is considerably inefficient. A new machine costing $150,000 will reduce annual operating costs from $50,000 per year to $20,000 per year. The new machine will last 10 years and will be amortized for tax purposes at 30 percent. The older machine has a book value of $46,500. The older machine could be sold for $27,500 today. In 10 years the older machine could be scrapped for $8,000, whereas the new machine would still be worth $32,000. Also, the older machine requires a spare parts inventory (not eligible for tax-related amortization) of $5,000 that is not required by the newer machine. Blue Sky’s tax rate is 28 percent, and its cost of capital is 15 percent. Would you advise Blue Sky to replace the older machine?Assume the PV of the tax benefits is $39,000.
Answer the question, based on the following info: Do not round the intermediate calculations and round the final answer to the nearest whole number. Thomson Media is considering a new project that will cost the firm $70,000 for the equipment, which has a useful life of three years. Under the new tax law, the equipment is eligible for 100% bonus depreciation, so it will be fully depreciated at time zero. The equipment would be sold for $5,000 at the end of Year 3 when the project would be closed down. Also, additional net operating working capital (NOWC) in the amount of $10,000 would be required to implement the project, but it would be recovered at the end of the project's life. Revenues and operating costs in the amount of $61,000 and $30,000, respectively, are expected to be generated annually from the project over its three-year useful life. The cost of capital for the project is 10% and the tax rate is 25%. What is the anticipated cash flow for Year 3? Group of answer choices…
Your company, RMU Inc., is considering a new project whose data are shown below. Under the new tax law, the equipment used in the project is eligible for 100% bonus depreciation, so it will be fully depreciated at t = 0. What is the project's Year 1 cash flow? Sales revenues $26,750 Operating costs $13,511 Tax rate 25.0%
Your firm needs a computerized tool lathe which cost $49000 and requires $119000 in maintenance for each year of its 3-year life. After three years, this machine will be replaced. The machine falls into the MACRS 3-year class life category. Assume a tax rate of 34 percent and a discount rate of 13 percent. Calculate the depreciation tax shield for this project. Work in excel
Your new employer, Freeman Software, is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, and the allowed depreciation rates for such property are 33.33%, 44.45%, 14.81%, and 7.41% for Years 1 through 4. Revenues and other operating costs are expected to be constant over the project's 10-year expected life. What is the Year 1 cash flow? Equipment cost (depreciable basis) $65,000 Sales revenues, each year $60,000 Operating costs (excl. deprec.) $25,000 Tax rate 25.0% a. $36,869 b. $31,849 c. $35,114 d. $31,666 e. $33,442
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Consider an asset that costs $666,000 and is depreciated straight-line to zero over its nine-year tax life. The asset is to be used in a five-year project; at the end of the project, the asset can be sold for $169,000. If the relevant tax rate is 30 percent, what is the aftertax cash flow from the sale of this asset? (Do not round intermediate calculations.) Aftertax salvage value 2$ eBook & Resources eBook: 10.4. More about Project Cash FloW Check my work
Thomson Media is considering some new equipment whose data are shown below. The equipment has a 3-year tax life. Under the new tax law, the equipment is eligible for 100% bonus depreciation, so it will be fully depreciated at t = 0. The equipment would have a positive pre-tax salvage value at the end of Year 3, when the project would be closed down. Also, additional net operating working capital (NOWC) would be required, but it would be recovered at the end of the project's life. Revenues and operating costs are expected to be constant over the project's 3-year life. What is the project's NPV? Do not round the intermediate calculations and round the final answer to the nearest whole number. WACC 10.0% Equipment cost $70,000 Required net operating working capital (NOWC) $10,000 Annual sales revenues $61,000 Annual operating costs $30,000 Expected pre-tax salvage value $5,000 Tax rate 25.0% Please explain and provide calculations.

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