General accounting question Horizon Technologies is evaluating a capital investment project with the following details:•Initial Equipment Investment: $240,000Estimated Useful Life: 5 years•No Salvage Value•••Annual Incremental Sales: $720,000Annual Incremental Cash Operating Expenses: $540,000One-time Special Equipment Upgrade in Year 3: $90,000Initial Working Capital Investment: $25,000 (to be recovered at project end)Corporate Income Tax Rate: 35%Depreciation Method: Straight-line DepreciationCalculate the income tax expense for Year 3 of the project.

Step 1: Define Income Tax ExpenseIncome tax expense is the amount a company owes in taxes based on…

Answered: Horizon Technologies is evaluating a…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 15P

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Consolidated Aluminum is considering the purchase of a new machine that will cost $308,000 and provide the following cash flows over the next five years: $88,000, 92,000, $91,000, $72,000, and $71,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel, see Appendix C.
Garnette Corp is considering the purchase of a new machine that will cost $342,000 and provide the following cash flows over the next five years: $99,000, $88,000, $92,000. $87,000, and $72,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel. see Appendix C.
Manzer Enterprises is considering two independent investments: A new automated materials handling system that costs 900,000 and will produce net cash inflows of 300,000 at the end of each year for the next four years. A computer-aided manufacturing system that costs 775,000 and will produce labor savings of 400,000 and 500,000 at the end of the first year and second year, respectively. Manzer has a cost of capital of 8 percent. Required: 1. Calculate the IRR for the first investment and determine if it is acceptable or not. 2. Calculate the IRR of the second investment and comment on its acceptability. Use 12 percent as the first guess. 3. What if the cash flows for the first investment are 250,000 instead of 300,000?
Postman Company is considering two independent projects. One project involves a new product line, and the other involves the acquisition of forklifts for the Materials Handling Department. The projected annual operating revenues and expenses are as follows: Required: Compute the after-tax cash flows of each project. The tax rate is 40 percent and includes federal and state assessments.
Consider the following financial data for an investment project:• Required capital investment at n = 0: $ 100,000• Project service life: 10 years• Salvage value at n = 10: $15,000• Annual revenue: $150.000• Annual O&M costs (not including depreciation): $50.000• Depreciation method for tax purpose: seven-year MACRS• In come tax rate: 40%.Determine the project cash flow at the end of year 10.(a) $69.000(b) $73.000(c) $66.000(d) $67.000
Consider the following financial data for an investment project:• Required capital investment al n = 0: $ 100,000• Project service life: I 0 yea rs• Salvage value at N = I 0: $15,000• Annual revenue: $150.000• Annual O&M costs (not including depreciation): $50.000• Depreciation method for tax purpose: seven-year MACRS• Income tax rate: 40%.Determine the project cash flow at the end of year lO.(a) $69.000(b) $73.000(c) $66.000(d) $67.000
The following information is available about an investment opportunity: Initial Capital Expenditure                     $3 Million Annual Sales (in units) 100,000 Selling price per unit $50 Cost per unit $20 Project life 3 years Salvage value $0 Depreciation                                         Straight line, over life of the project Tax rate 35% WACC                                                   20% Initially the project requires an increase in net working capital of $600,000, but it will be recovered after the project’s life. Calculate NPV:
The following information is available about an investment opportunity: Initial Capital Expenditure                     $3 Million Annual Sales (in units) 100,000 Selling price per unit $50 Cost per unit $20 Project life 3 years Salvage value $0 Depreciation                                         Straight line, over life of the project Tax rate 35% WACC                                                   20% Initially the project requires an increase in net working capital of $600,000, but it will be recovered after the project’s life.   Calculate the project’s depreciation expense:
The following information is available about an investment opportunity: Initial Capital Expenditure                     $3 Million Annual Sales (in units) 100,000 Selling price per unit $50 Cost per unit $20 Project life 3 years Salvage value $0 Depreciation                                         Straight line, over life of the project Tax rate 35% WACC                                                   20% Initially the project requires an increase in net working capital of $600,000, but it will be recovered after the project’s life.   Calculate payback period, in number of years:
The following information is available about an investment opportunity: Initial Capital Expenditure $3 Million Annual Sales (in units) 100,000 Selling price per unit $50 Cost per unit $20 Project life 3 years Salvage value $0 Depreciation Straight line, over life of the project Tax rate 35% WACC 20% Initially the project requires an increase in net working capital of $600,000, but it will be recovered after the project’s life. Calculate the project’s cash flows in years 0, 1, 2, and 3. (hint: pay attention to the working capital change):
The following information is available about an investment opportunity: Initial Capital Expenditure $3 Million Annual Sales (in units) 100,000 Selling price per unit $50 Cost per unit $20 Project life 3 years Salvage value $0 Depreciation Straight line, over life of the project Tax rate 35% WACC 20% Initially the project requires an increase in net working capital of $600,000, but it will be recovered after the project’s life. Calculate profitability index (PI):
The following data pertain to an investment currently being considered by Kalamazoo Corporation: Investment in the project: $14,000 Net annual cash inflows: 2,800 Working capital: 5,000 Salvage value: 1,000 Life of the project: 10 years The working capital would be released for use elsewhere when the project is completed. What is the net present value of the project, using a discount rate of 8% $2,566 ($251) $251 $5,251

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