Lander Company has an opportunity to pursue a capital budgeting project with a five-year time horizon. Lander estimated the following costs and revenues for the project: Cost of equipment needed Working capital needed Repair of the equipment in two years Annual revenues and costs: Sales revenues Variable expenses Fixed out-of-pocket operating costs $ 420,000 $ 79,000 $ 27,500 $ 540,000 $ 275,000 $ 118,000 The piece of equipment mentioned above has a useful life of five years and zero salvage value. Lander uses straight-line depreciation for financial reporting and tax purposes. The company's tax rate is 30% and its after-tax cost of capital is 10%. When the project concludes in five years, the working capital will be released for investment elsewhere within the company. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. 1. Income tax expense Year 1 Year 2 Year 3 Year 4 Year 5 2. Net present value Required: 1. Calculate the annual income tax expense for each of years 1 through 5 arising from this investment opportunity. 2. Calculate the net present value of this investment opportunity. Note: Negative amounts should be indicated by a minus sign. Round your final answer to the nearest whole dollar.
Lander Company has an opportunity to pursue a capital budgeting project with a five-year time horizon. Lander estimated the following costs and revenues for the project: Cost of equipment needed Working capital needed Repair of the equipment in two years Annual revenues and costs: Sales revenues Variable expenses Fixed out-of-pocket operating costs $ 420,000 $ 79,000 $ 27,500 $ 540,000 $ 275,000 $ 118,000 The piece of equipment mentioned above has a useful life of five years and zero salvage value. Lander uses straight-line depreciation for financial reporting and tax purposes. The company's tax rate is 30% and its after-tax cost of capital is 10%. When the project concludes in five years, the working capital will be released for investment elsewhere within the company. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. 1. Income tax expense Year 1 Year 2 Year 3 Year 4 Year 5 2. Net present value Required: 1. Calculate the annual income tax expense for each of years 1 through 5 arising from this investment opportunity. 2. Calculate the net present value of this investment opportunity. Note: Negative amounts should be indicated by a minus sign. Round your final answer to the nearest whole dollar.
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
 and [Exhibit 14B-2](#) to determine the appropriate discount factor(s) using tables.
**Required:**
1. Calculate the annual income tax expense for each of years 1 through 5 arising from this investment opportunity.
2. Calculate the net present value of this investment opportunity.
*Note: Negative amounts should be indicated by a minus sign. Round your final answer to the nearest whole dollar.*
| Income Tax Expense |
|---------------------|
| Year 1 | [input box] |
| Year 2 | [input box] |
| Year 3 | [input box] |
| Year 4 | [input box] |
| Year 5 | [input box] |
| Net Present Value |
|---------------------|
| [input box] |](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe6069db0-f496-4c11-99c9-1e809a876661%2F8f06d01f-016a-4155-9652-97c5f636b5f8%2F1nk2gss_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Lander Company has an opportunity to pursue a capital budgeting project with a five-year time horizon. Lander estimated the following costs and revenues for the project:
- **Cost of equipment needed:** $420,000
- **Working capital needed:** $79,000
- **Repair of the equipment in two years:** $27,500
- **Annual revenues and costs:**
- **Sales revenues:** $540,000
- **Variable expenses:** $275,000
- **Fixed out-of-pocket operating costs:** $118,000
The equipment mentioned has a useful life of five years and zero salvage value. Lander uses straight-line depreciation for financial reporting and tax purposes. The company’s tax rate is 30%, and its after-tax cost of capital is 10%. When the project concludes in five years, the working capital will be released for investment elsewhere within the company.
Click to view [Exhibit 14B-1](#) and [Exhibit 14B-2](#) to determine the appropriate discount factor(s) using tables.
**Required:**
1. Calculate the annual income tax expense for each of years 1 through 5 arising from this investment opportunity.
2. Calculate the net present value of this investment opportunity.
*Note: Negative amounts should be indicated by a minus sign. Round your final answer to the nearest whole dollar.*
| Income Tax Expense |
|---------------------|
| Year 1 | [input box] |
| Year 2 | [input box] |
| Year 3 | [input box] |
| Year 4 | [input box] |
| Year 5 | [input box] |
| Net Present Value |
|---------------------|
| [input box] |
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