Gaewelyn is considering opening a new business for a long-term care facility. The initial investment for the business is $650,000, which includes constructing the housing unit and purchasing other assets. For tax purposes, the projected salvage value of all the assets is $108,000. The government requires depreciating the assets using the straight-line method over the business's life of 15 years. Gaewelyn is trying to estimate the net cashflows after tax for this business. She has already figured out that the business will generate an annual after-tax cash inflow of $85,000 from the operation. She now needs your help to estimate the net cash inflow that she will receive from selling the facility's assets at the end of 15 years. Gaewelyn's required return is 8%. Required: (1) Gaewelyn estimates that, if the economic is booming at the end of the 15 years, she can sell the assets for $146,000. Assuming the tax rate of 30%, what is the net after-tax cashflow Gaewelyn will receive from selling her assets at the end of 15 years? (Please round your answer to the nearest dollar) $134600 (2) If Gaewelyn is able to sell her assets for $146,000, as mentioned in (1) above, what is the Internal Rate of Return (IRR) for Gaewelyn's business? (Please round your answer to two decimal points, i.e., XX.XX%) (3) Gaewelyn estimates that, if the economy is in recess at the end of the 15 years, she can sell the assets for $78,000. Assuming the tax rate of 30%, what is the net after-tax cashflow Gaewelyn will receive from selling her assets at the end of 15 years? (Please round your answer to the nearest dollar) $[ (4) If Gaewelyn is able to sell her assets for $78,000, as mentioned in (3) above, what is the Net Present Value (NPV) for Gaewelyn's business? (Please round your answer to two decimal points) $[
Gaewelyn is considering opening a new business for a long-term care facility. The initial investment for the business is $650,000, which includes constructing the housing unit and purchasing other assets. For tax purposes, the projected salvage value of all the assets is $108,000. The government requires depreciating the assets using the straight-line method over the business's life of 15 years. Gaewelyn is trying to estimate the net cashflows after tax for this business. She has already figured out that the business will generate an annual after-tax cash inflow of $85,000 from the operation. She now needs your help to estimate the net cash inflow that she will receive from selling the facility's assets at the end of 15 years. Gaewelyn's required return is 8%. Required: (1) Gaewelyn estimates that, if the economic is booming at the end of the 15 years, she can sell the assets for $146,000. Assuming the tax rate of 30%, what is the net after-tax cashflow Gaewelyn will receive from selling her assets at the end of 15 years? (Please round your answer to the nearest dollar) $134600 (2) If Gaewelyn is able to sell her assets for $146,000, as mentioned in (1) above, what is the Internal Rate of Return (IRR) for Gaewelyn's business? (Please round your answer to two decimal points, i.e., XX.XX%) (3) Gaewelyn estimates that, if the economy is in recess at the end of the 15 years, she can sell the assets for $78,000. Assuming the tax rate of 30%, what is the net after-tax cashflow Gaewelyn will receive from selling her assets at the end of 15 years? (Please round your answer to the nearest dollar) $[ (4) If Gaewelyn is able to sell her assets for $78,000, as mentioned in (3) above, what is the Net Present Value (NPV) for Gaewelyn's business? (Please round your answer to two decimal points) $[
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:Gaewelyn is considering opening a new business for a long-term care facility. The initial investment for the business is $650,000,
which includes constructing the housing unit and purchasing other assets. For tax purposes, the projected salvage value of all the
assets is $108,000. The government requires depreciating the assets using the straight-line method over the business's life of
15 years. Gaewelyn is trying to estimate the net cashflows after tax for this business. She has already figured out that the business will
generate an annual after-tax cash inflow of $85,000 from the operation. She now needs your help to estimate the net cash inflow
that she will receive from selling the facility's assets at the end of 15 years. Gaewelyn's required return is 8%.
Required:
(1) Gaewelyn estimates that, if the economic is booming at the end of the 15 years, she can sell the assets for $146,000. Assuming the
tax rate of 30%, what is the net after-tax cashflow Gaewelyn will receive from selling her assets at the end of 15 years? (Please round
your answer to the nearest dollar) $134600
(2) If Gaewelyn is able to sell her assets for $146,000, as mentioned in (1) above, what is the Internal Rate of Return (IRR) for
Gaewelyn's business? (Please round your answer to two decimal points, i.e.. XX.XX%)
(3) Gaewelyn estimates that, if the economy is in recess at the end of the 15 years, she can sell the assets for $78,000. Assuming the
tax rate of 30%, what is the net after-tax cashflow Gaewelyn will receive from selling her assets at the end of 15 years? (Please round
your answer to the nearest dollar) $[
(4) If Gaewelyn is able to sell her assets for $78,000, as mentioned in (3) above, what is the Net Present Value (NPV) for Gaewelyn's
business? (Please round your answer to two decimal points) $1
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Step 1: Net present value:
VIEWStep 2: (1) Determine the net after-tax cashflow Gaewelyn will receive from selling her assets:
VIEWStep 3: (2) Determine the Internal Rate of Return (IRR) for Goewelyn's business:
VIEWStep 4: (3) Determine the net after-tax cashflow Gaewelyn will receive from selling her assets:
VIEWStep 5: (4) Determine the Net Present Value (NPV) for Goewelyn's business:
VIEWSolution
VIEW
Trending now
This is a popular solution!
Step by step
Solved in 6 steps with 4 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education