New equipment purchase, income taxes. Ella's Bakery plans to purchase a new oven for its store. The oven has an estimated useful life of 4 years. The estimated pretax cash flows for the oven are as shown in the table that follows, with no anticipated change in working capital. Ella's Bakery has a 14% after-tax re- quired rate of return and a 35% income tax rate. Assume depreciation is calculated on a straight-line basis for tax purposes using the initial investment in the oven and its estimated terminal disposal value. Assume all cash flows occur at year-end except for initial investment amounts. Page Layout Home Insert Formulas Data Review View Relevant Cash Flows at End of Each Year 2 3 4 3 Initial oven investment Annual cash flow from operations 4 (excluding the depreciation effect) 5 Cash flow from terminal disposal of oven ($186,000) $77,000 $77,000 $77,000 $77,000 $ 6,000
New equipment purchase, income taxes. Ella's Bakery plans to purchase a new oven for its store. The oven has an estimated useful life of 4 years. The estimated pretax cash flows for the oven are as shown in the table that follows, with no anticipated change in working capital. Ella's Bakery has a 14% after-tax re- quired rate of return and a 35% income tax rate. Assume depreciation is calculated on a straight-line basis for tax purposes using the initial investment in the oven and its estimated terminal disposal value. Assume all cash flows occur at year-end except for initial investment amounts. Page Layout Home Insert Formulas Data Review View Relevant Cash Flows at End of Each Year 2 3 4 3 Initial oven investment Annual cash flow from operations 4 (excluding the depreciation effect) 5 Cash flow from terminal disposal of oven ($186,000) $77,000 $77,000 $77,000 $77,000 $ 6,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Calculate accrual accounting
Transcribed Image Text:New equipment purchase, income taxes. Ella's Bakery plans to purchase a new oven for its store.
The oven has an estimated useful life of 4 years. The estimated pretax cash flows for the oven are as shown
in the table that follows, with no anticipated change in working capital. Ella's Bakery has a 14% after-tax re-
quired rate of return and a 35% income tax rate. Assume depreciation is calculated on a straight-line basis
for tax purposes using the initial investment in the oven and its estimated terminal disposal value. Assume
all cash flows occur at year-end except for initial investment amounts.
Page Layout
Home
Insert
Formulas
Data
Review
View
Relevant Cash Flows at End of Each Year
2
3
4
3 Initial oven investment
Annual cash flow from operations
4 (excluding the depreciation effect)
5 Cash flow from terminal disposal of oven
($186,000)
$77,000
$77,000
$77,000
$77,000
$ 6,000
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