K Operating cash inflows A firm is considering renewing its equipment to meet increased demand for its product. The cost of equipment modifications is $1.97 million plus $108,000 in installation costs. The firm will depreciate the equipment modifications under MACRS, using a 5-year recovery period (see table B) Additional sales revenue from the renewal should amount to $1.18 million per year, and additional operating expenses and other costs (excluding depreciation and interest) will amount to 43% of the additional sales. The firm is subject to a tax rate of 21%. (Note: Answer the following questions for each of the next 6 years.) a. What net incremental eamings before depreciation, interest, and taxes will result from the renewal? b. What net incremental operating profits after taxes will result from the renewall? c. What net incremental operating cash inflows will result from the renewal? a. The net incremental profits before depreciation and tax are $ (Round to the nearest dollar.) Data table (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes - X Percentage by recovery year* Recovery year 3 years 5 years 7 years 10 years 1 33% 20% 14% 10% 2 45% 32% 25% 18% 3 15% 19% 18% 14% 4 7% 12% 12% 12% 5 12% 9% 9% 6 5% 9% 8% 7 9% 7% 8 4% 6% 9 6% 10 6% 4% 11 Clear all Check answer View an exa Totals 100% 100% 100% 100% *These percentages have been rounded to the nearest whole percent to simplify calculations while
K Operating cash inflows A firm is considering renewing its equipment to meet increased demand for its product. The cost of equipment modifications is $1.97 million plus $108,000 in installation costs. The firm will depreciate the equipment modifications under MACRS, using a 5-year recovery period (see table B) Additional sales revenue from the renewal should amount to $1.18 million per year, and additional operating expenses and other costs (excluding depreciation and interest) will amount to 43% of the additional sales. The firm is subject to a tax rate of 21%. (Note: Answer the following questions for each of the next 6 years.) a. What net incremental eamings before depreciation, interest, and taxes will result from the renewal? b. What net incremental operating profits after taxes will result from the renewall? c. What net incremental operating cash inflows will result from the renewal? a. The net incremental profits before depreciation and tax are $ (Round to the nearest dollar.) Data table (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes - X Percentage by recovery year* Recovery year 3 years 5 years 7 years 10 years 1 33% 20% 14% 10% 2 45% 32% 25% 18% 3 15% 19% 18% 14% 4 7% 12% 12% 12% 5 12% 9% 9% 6 5% 9% 8% 7 9% 7% 8 4% 6% 9 6% 10 6% 4% 11 Clear all Check answer View an exa Totals 100% 100% 100% 100% *These percentages have been rounded to the nearest whole percent to simplify calculations while
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
Related questions
Question
Transcribed Image Text:K
Operating cash inflows A firm is considering renewing its equipment to meet increased demand for its product. The cost of equipment modifications is $1.97 million plus $108,000 in installation
costs. The firm will depreciate the equipment modifications under MACRS, using a 5-year recovery period (see table B) Additional sales revenue from the renewal should amount to $1.18 million
per year, and additional operating expenses and other costs (excluding depreciation and interest) will amount to 43% of the additional sales. The firm is subject to a tax rate of 21%. (Note: Answer
the following questions for each of the next 6 years.)
a. What net incremental eamings before depreciation, interest, and taxes will result from the renewal?
b. What net incremental operating profits after taxes will result from the renewall?
c. What net incremental operating cash inflows will result from the renewal?
a. The net incremental profits before depreciation and tax are $ (Round to the nearest dollar.)
Data table
(Click on the icon here in order to copy the contents of the data table below into a spreadsheet.)
Rounded Depreciation Percentages by Recovery Year Using MACRS for
First Four Property Classes
- X
Percentage by recovery year*
Recovery year
3 years
5 years
7 years
10 years
1
33%
20%
14%
10%
2
45%
32%
25%
18%
3
15%
19%
18%
14%
4
7%
12%
12%
12%
5
12%
9%
9%
6
5%
9%
8%
7
9%
7%
8
4%
6%
9
6%
10
6%
4%
11
Clear all
Check answer
View an exa
Totals
100%
100%
100%
100%
*These percentages have been rounded to the nearest whole percent to simplify calculations while
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