The Lumber Yard is considering adding a new product line that is expected to increase annual sales by $352,000 and expenses by $244,000. Theproject will require $153,000 in fixed assets that will be depreciated using the straight-line method to a zero book value over the 9-year life of the project.The company has a marginal tax rate of 21 percent. What is the depreciation tax shield?Multiple ChoiceO $20,145$3,570$8.213$22.680ER 540

Depreciation is the decrease in the value of fixed assets. The cost of the fixed assets is allocated…

Answered: The Lumber Yard is considering adding a…

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

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Your company, RMU Inc., is considering a new project whose data are shown below. Under the new tax law, the equipment used in the project is eligible for 100% bonus depreciation, so it will be fully depreciated at t = 0. What is the project's Year 1 cash flow? Sales revenues $24,950 Operating costs $13,450 Tax rate 25.0% a. $8,625 b. $14,375 c. $11,500 d. $5,263 e. $9,200
Karsted Air Services is now in the final year of a project. The equipment originally cost $23 million, of which 100% has been depreciated. Karsted can sell the used equipment today for $6 million, and its tax rate is 20%. What is the equipment's after-tax salvage value? Write out your answer completely. For example, 13 million should be entered as 13,000,000. Round your answer to the nearest dollar. $
Laurel’s Lawn Care Limited has a new mower line that can generate revenues of $132,000 per year. Direct production costs are $44,000, and the fixed costs of maintaining the lawn mower factory are $17,000 a year. The factory originally cost $1.10 million and is being depreciated for tax purposes over 25 years using straight-line depreciation. Calculate the operating cash flows of the project if the firm’s tax bracket is 25%. Operating Cash Flow = _________
A new machine can be purchased for $1,500,000. It will cost $45,000 to ship and $55,000 to install the machine. The new machine will replace an older machine that is fully depreciated and will be sold for $125,000. The firm’s income tax rate is 40%. What is the initial outlay (IO) for the new machine? $1,525,000 $1,600,000 $1,675,000 $1,725,000
Your Company is considering a new project that will require $2,000,000 of new equipment at the start of the project. The equipment will have a depreciable life of 10 years and will be depreciated to a book value of $250,000 using straight-line depreciation. The cost of capital is 12%, and the firm's tax rate is 21%. Estimate the present value of the tax benefits from depreciation. Multiple Choice A. $68,250 B. $207,646 C. $175,000 D. $988,789
Laurel’s Lawn Care Limited has a new mower line that can generate revenues of $120,000 per year. Direct production costs are $40,000, and the fixed costs of maintaining the lawn mower factory are $15,000 a year. The factory originally cost $1 million and is being depreciated for tax purposes over 25 years using straight-line depreciation. Calculate the operating cash flows of the project if the firm’s tax bracket is 25%.
If a chemical olant is paying 43% in income taxes and wants to purchase a ball mill designed to last for 20 years at a cost of $76,000, with no salvage value. Annual income generated will be $24,000 and annual expenditures will be $13,000. Using single line depreciation and a 10% interest rate, what is the 20 year after-tax present worth of the project?
Speed Queen Laundromat faces a 40% tax rate and uses a 12.7% discount rate. Speed Queen is purchasing a new $49,800 touchscreen laundry system that will raise annual sales by $5,800 and lower annual operating costs by $14,300. This system, which will have no salvage value, is expected to have a 7-year life and will be depreciated (straight-line) to zero. What is the NPV of purchasing the new laundry system? a. −$14,329 b. $5,148 c. $16,742 d. $23,094 e. −$1,204
A project requires the purchase of machinery for $40.000 The machinery belongs in a 20% CCA class and will have a salvage value of $4,000 at the end of the 4 year project. It will require a net working capital investment of $2,000 up-front, and the net working capital is recovered at the end of the project. The firm has a tax rate of 35% and a required return of 10%. The project generates annual before-tax sales less cash costs equal to $15,000 in each of years 1 to 4. What is the project's NPV? Multiple Choice O O O O $2124 $8.272 $881 $1169
mani.5
Casa Grande Farms is considering purchasing multiple tractors for a total purchase price of $540,000. These tractors are expected to generate EBITDA of $250,000 for each of the next three years. Casa Grande Farms has a 21% tax rate and has a cost of capital of 10%. Assuming that Casa Grande Farms depreciates these tractors SYD over the three-year life, the advantage (disadvantage) over SL depreciation is closest to?
Karsted Air Services is now in the final year of a project. The equipment originally cost $27 million, of which 100% has been depreciated. Karsted can sell the used equipment today for $6 million, and its tax rate is 30%. What is the equipment's after-tax salvage value? Write out your answer completely. For example, 13 million should be entered as 13,000,000. Round your answer to the nearest dollar.

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