The XYZ Company is considering a new project thatwill have an annual depreciation expense of $3.7million. If XYZ's corporate tax rate is 13 %, then whatis the value of the depreciation tax shield on theirnew project?

Approach to solving the question: Step 1: Figure out the cost of depreciation.First, figure out how…

Answered: The XYZ Company is considering a new…

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

See similar textbooks

Similar questions

Thomson Media is considering some new equipment whose data are shown below. The equipment has a 3-year tax life. Under the new tax law, the equipment is eligible for 100% bonus depreciation, so it will be fully depreciated at t = 0. The equipment would have a positive pre-tax salvage value at the end of Year 3, when the project would be closed down. Also, additional net operating working capital (NOWC) would be required, but it would be recovered at the end of the project's life. Revenues and operating costs are expected to be constant over the project's 3-year life. What is the project's NPV? Do not round the intermediate calculations and round the final answer to the nearest whole number. WACC 10.0% Equipment cost $70,000 Required net operating working capital (NOWC) $10,000 Annual sales revenues $61,000 Annual operating costs $30,000 Expected pre-tax salvage value $5,000 Tax rate 25.0% Please explain and provide calculations.
Esfandiri Enterprises is considering a new three year expansion project that requires an initial fixed asset investment of $2.18 million. The fixed asset will be depreciated straight-line to zero over its three year tax life, after which time it will be worthless. The Project is estimated to generate $1.645 million in annual sales with costs of $610,000. If the tax rate is 27.00% what is the OCF per year (OCF will be the same for the three years) for this project? Group of answer choices $650,058.06 $715,063.86 $786,570.25 $865,227.27 $951,750.00
What is the NPV assuming a 12% rate of return. (ignore Tax) Bramble Inc. is considering modernizing its production facility by investing in new equipment and selling the old equipment. The following information has been collected on this investment: Depreciation is $10, 230 per year for the old equipment. The straight-line depreciation method would be used for the new equipment over an eight-year period with salvage value of $4,600. Calculate NPV assuming a 12% rate of return Bramble Inc. is considering modernizing its production facility by investing in new equipment and selling the old equipment. The following information has been collected on this investment: Cost Old Equipment Accumulated depreciation Remaining life Current salvage value Salvage value in 8 years Annual cash operating costs $81,840 Cost $41,000 8 years $11,200 $0 $35,700 New Equipment Estimated useful life Salvage value in 8 years Annual cash operating costs $38,000 8 years $4,600 $30,700 Depreciation is $10,230 per…
te.3
Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.18 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $1730000 million in annual sales, with costs of $640,000. The tax rate is 24 percent. If the required return is 13 percent, what is the project's NPV? please answer fast i give upvote
H. Cochran, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.15 million. The fixed asset will be depreciated straight- line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2.23 million in annual sales, with costs of $1.25 million. Assume the tax rate is 23 percent and the required return on the project is 14 percent. What is the project's NPV? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Net present value
The Wet Corporation has an investment project that will reduce expenses by $20,000 per year for 3 years. The project's cost is $25,000. If the asset is part of the 3-year MACRS category (33.33% first year depreciation) and the company's combined tax rate is 35%, what is the cash flow from the project in year 1 ?
Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2,350,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2,830,000 in annual sales, with costs of $1,850,000. Assume the tax rate is 25 percent and the required return on the project is 11 percent. What is the project’s NPV?
Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $2,098,350. The fixed asset will be depreciated straight-line to zero over its 3-year tax life, after which time it will be worthless. The project is estimated to generate $1,814,883 in annual sales, with costs of $1,675,390. If the tax rate is 0.33 , what is the OCF for this project?
what is the present value of the tax shield for the following project? the initial investment is $300,000. the project will last for 6 years, at which time the asset will be sold for $90,000. the asset will be depreciated on a declining balance basis at a rate of 20 percent. the firm's marginal tax rate is 40 percent. the firm's required rate of return is 8 percent a) 16,204.36 b) 82,539.68 c) 98,744.04 d) 66,335.32
Wilson, Inc., is considering a new four-year expansion project that requires an initial fixed asset investment of $1,875,000. The fixed asset will be depreciated straight-line to zero over its four-year tax life, after which time it will be worthless. The project is estimated to generate $2,040,000 in annual sales, with costs of $1,235,000. If the tax rate is 35 %, and the required return on the project is 12%, what is the project's NPV?
DMV, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $1.2 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which it will be worthless. The project is estimated to generate $1,40,000 in annual sales, with costs of $500,000. The tax rate is 37 percent and the required return is 12 percent. What is the project's NPV?

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS

The XYZ Company is considering a new project that will have an annual depreciation expense of $3.7 million. If XYZ's corporate tax rate is 13 %, then what is the value of the depreciation tax shield on their new project?