Ford Motor Company is considering launching a new line of hybrid diesel-electric SUVS. The heavy advertising expenses associated with the new SUV launch would generate operating losses of $30 million next year. Without the new SUV, Ford expects to earn pretax income of $90 million from operations next year. Ford paysa 20% tax-rate on its pretax income. The amount that Ford Motor Company owes in taxes next year with the launch of the new SUV is closest to:O A. $18.0 millionO B. $24.0 millionO C. $6.0 millionO D. $12.0 million

Taxes can be calculated on the net operating income of the company. The operating losses which will…

Ford Motor Company is considering launching a new line of hybrid diesel-electric SUVS. The heavy advertising expenses associated with the new SUV launch would generate operating losses of $30 million next year. Without the new SUV, Ford expects to eam pretax income of $90 million from operations next year. Ford pays a 20% tax-rate on its pretax income. The amount that Ford Motor Company owes in taxes next year with the launch of the new SUV is closest to: O A. $18.0 million O B. $24.0 million OC. $6.0 million OD. $12.0 million

Ford Motor Company is considering launching a new line of hybrid diesel-electric SUVS. The heavy advertising expenses associated with the new SUV launch would generate operating losses of $30 million next year. Without the new SUV, Ford expects to eam pretax income of $90 million from operations next year. Ford pays a 20% tax-rate on its pretax income. The amount that Ford Motor Company owes in taxes next year with the launch of the new SUV is closest to: O A. $18.0 million O B. $24.0 million OC. $6.0 million OD. $12.0 million

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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Toyota will bring hybrid electric automobiles to market next year priced at $32,000 (this includes a $8,000 federal tax credit). At $1.83 per gallon of gasoline, it will take 11 years to recoup the difference in price between a base model Toyota Camry and its four-cylinder gasoline-only counterpart. The price difference is $4,180. If the hybrid vehicle is driven for 16 years, what is the internal rate of return on the extra investment in the hybrid? The internal rate of return on the extra investment in the hybrid is%. (Round to one decimal place.)
PCW Co is a listed company that operates in the automobile industry. Due to an increase in local demand for the company’s products, PCW Co decides to invest in a new machinery. Such an investment project requires some initial investment in working capital of $300,000. And the investment in working capital is subject to general inflation, which is forecasted to be 5% per annum. The cost of the new machine is $3 million. Each year, the new investment is estimated to generate 7,000 products and all of them are expected to be sold. For simplicity’s reason, there is no scrap value of the machine. The usual lifetime of the machinery would be 3 years, after which it is supposed to be replaced. The costs and selling price in current price terms are summarised as follows: Annual sector-specific inflation Variable costs. $100 / unit 6.0 % Incremental fixed costs $200,000 / year. 4.5 % Selling price $400 / unit…
The Seaboard Sail school is considering the purchase of new boats for $260,000. The firm's old sailboats have a sell value of $54,000. The boats are subject to a 15% CCA. This investment will generate additional Cash flows revenue $45,000 for 8 years after taxes through reduced fuel and maintenance expenses. Seaboard is in the 30% tax bracket and has a 9% cost of capital. Calculate the net present value of Seaboard's purchase and state whether or not the firm should buy the boats. 1. What is the net amount of the replacement 2. Calculate Present Value of After-tax Savings for the 8 years (Hint: you can calcuate the PV for all years all at once using PMT) 3. Calculate PV of Tax Shield (CCA) 4. Calculate the NPV by using amounts from above and in question details and indicate if they should buy the machine.
Quick Computing installed its previous generation of computer chip manufacturing equipment 3 years ago. Some of that older equipment will become unnecessary when the company goes into production of its new product. The obsolete equipment, which originally cost $40 million, has been depreciated straight-line over an assumed tax life of 5 years, but it can be sold now for $18 million. The firm’s tax rate is 30%. What is the after-tax cash flow from the sale of the equipment? Note: Enter your answer in millions rounded to 2 decimal places.
Quick Computing installed its previous generation of computer chip manufacturing equipment 3 years ago. Some of that older equipment will become unnecessary when the company goes into production of its new product. The obsolete equipment, which originally cost $37.00 million, has been depreciated straight-line over an assumed tax life of 5 years, but it can be sold now for $17.40 million. The firm’s tax rate is 30%. What is the after-tax cash flow from the sale of the equipment? (Enter your answer in millions rounded to 1 decimal place.) After-tax cash flow
Spherical Manufacturing recently spent $15 million to purchase some equipment used in the manufacture of disk drives. This equipment has a CCA rate of 30% and Spherical's marginal corporate tax rate is 36%. a. What are the annual CCA deductions associated with this equipment for the first five years? b. What are the annual CCA tax shields for the first five years? c. What is the present value of the first five CCA tax shields if the appropriate discount rate is 12% per year? d. What is the present value of all the CCA tax shields assuming the equiment is never sold and the appropriate discount rate is 12% per year? e. How might your answer to part (d) change if Spherical anticipates that its marginal corporate tax rate will increase substantially over the next five years? a. What are the annual CCA deductions associated with this equipment for the first five years? The CCA deduction for year 1 is $ (Round to the nearest dollar.) Question Viewer
Quick Computing installed its previous generation of computer chip manufacturing equipment 3 years ago. Some of that older equipment will become unnecessary when the company goes into production of its new product. The obsolete equipment, which originally cost $40 million, has been depreciated straight-line over an assumed tax life of 5 years, but it can be sold now for $18 million. The firm's tax rate is 30%. What is the after-tax cash flow from the sale of the equipment? Note: Enter your answer in millions rounded to 2 decimal places. After-tax cash flow million
Vijay
Spherical Manufacturing recently spent $19 million to purchase some equipment used in the manufacture of disk drives. This equipment has a CCA rate of 45% and Spherical's marginal corporate tax rate is 28%. a. What are the annual CCA deductions associated with this equipment for the first five years? b. What are the annual CCA tax shields for the first five years? c. What is the present value of the first five CCA tax shields if the appropriate discount rate is 10% per year? d. What is the present value of all the CCA tax shields assuming the equiment is never sold and the appropriate discount rate is 10% per year? e. How might your answer to part (d) change if Spherical anticipates that its marginal corporate tax rate will increase substantially over the next five years?
Wonderful Company thinks it may need a new color printing press. The press will cost $500,000 but will substantially reduce operating costs by $250,000 per year, before tax. The press has 30% CCA rate and will remain in its asset pool. The first CCA deduction is made in year 0. The press will operate for 4 years and then be worthless. The cost of equity Is 12%, the pre-tax cost of debt is 8%, and the company’s target debt-equity ratio is .5. The company’s tax rate is 30%. a. What is the NPV of buying the press? b. The equipment manufacturer if offering to lease the press for 4 years for $112,000 a year, payable in advance i.e. at the beginning of the year. Should Wonderful Company accept the offer? Give reasons in support of your conclusion. Show all of your working using a financial calculator.
Jeff & Bezos is a fresh groceries delivery company. The company has access to borrowing funds at a pre-tax rate of 8 % per year. Jeff & Bezos pays income taxes using 22 % tax rate. The company would like to start using high-speed low-altitude drones to deliver grocery purchases directly to residential customers' backyards. The required fleet of drones costs $7,500,000. The fleet of drones, due to their heavy usage, would have no salvage value in four years. If the company chooses to buy them, the drones would be losing their economic value following the three-year property class under the MACRS depreciation method. Instead of buying the fleet of the drones, Jeff & Bezos is also contemplating leasing them for an estimated pre-tax annual cost of $2,205,000 per year for four years from a different company, Nets & Flicks, that currently owns the required number of the drones. Jeff & Bezos' net advantage to leasing, a.k.a. NAL, equals (Do not round intermediate calculations and round your…

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