True or False: If a project involves buying an asset, and if the company uses “accelerated depreciation” for tax purposes, after-tax cash flows for the project would be smaller in earlier years of the project than if the company used “straight line depreciation”, and therefore the project’s NPV would be smaller if it used accelerated depreciation, compared to the NPV if it used straight-line depreciation. Explain your a

True or False: If a project involves buying an asset, and if the company uses “accelerated depreciation” for tax purposes, after-tax cash flows for the project would be smaller in earlier years of the project than if the company used “straight line depreciation”, and therefore the project’s NPV would be smaller if it used accelerated depreciation, compared to the NPV if it used straight-line depreciation. Explain your a

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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11.4 Which of the following are relevant cash flows in the evaluation of a proposal to produce a new product? a. Decrease in the cash flows of a substitute product. b. Alternative of leasing an existing building that will be used for manufacturing this product. c. The cost of a new machine required to produce this product. d. Salvage value of the new machine at the end of its useful life. e. Increase in net working capital at the beginning of the project's life. f. Cost to develop a product prototype last year.
The internal rate of return is the: discount rate that makes present value of cash inflows equal to present value of cash outflows. discount rate that causes a project's after-tax income to equal zero. discount rate that results in a zero net accounting return. rate of return required by the project's investors.
Changes in net operating working capital can be excluded from a project's cash flows because the funds will be recaptured at the conclusion of the project. OA company that uses accelerated depreciation will have higher net income in the early years and lower net income in the later years, all other things held constant. O The ability to abandon a project if cash flows are lower than expected can have value irrespective of whether the project is of higher or lower than average risk. O Proper analysis of project's cash flows to determine its NPV requires that those cash flows include both opportunity costs and sunk costs. O Monte Carlo simulation can provide valuable information about the risk of a project's cash flow, such as the standard deviation of the cash flow, but it cannot tell us anything about the expected cash flow.
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Taxes are costs, and, therefore, changes in tax rates can affect consumer prices, project lives, and the value of existing firms. Evaluate the change in taxation on the valuation of the following project: Assumptions: Tax depreciation is straight-line over three years. Pre-tax salvage value is 25 in Year 3 and 50 if the asset is scrapped in Year 2. Tax on salvage value is 40% of the difference between salvage value and book value of the investment. The cost of capital is 20%. 4. Would it now make sense to terminate the project after two rather than three years? 5. How would your answers change if the corporate income tax were abolished entirely? NOTE: The three initial question was sent before these last two. please clarify the answer as much as possible in the Excel spreadsheet. The table to the question is attchedThank you
The IRR evaluation method assumes that cash flows from the project are reinvested at the same rate equal to the IRR. However, in reality the reinvested cash flows may not necessarily generate a return equal to the IRR. Thus, the modified IRR approach makes a more reasonable assumption other than the project's IRR. Consider the following situation: Cold Goose Metal Works Inc. is analyzing a project that requires an initial investment of $3,000,000. The project's expected cash flows are: Year Year 1 Cash Flow $375,000 Year 2 -175,000 Year 3 400,000 Year 4 450,000 Cold Goose Metal Works Inc.'s WACC is 7%, and the project has the same risk as the firm's average project. Calculate this project's modified internal rate of return (MIRR): O 14.83% O-19.30% O 20.07% 13.96% If Cold Goose Metal Works Inc.'s managers select projects based on the MIRR criterion, they should this independent project.
Which of the following statements is (are) FALSE? Select one or more alternatives: When sales of a new product displace sales of an existing product, the situation is often referred to as cannibalisation. If the IRR of a project is equal to the cost of capital, the NPV will be zero. It is reasonable to assume that a business has a terminal growth rate higher than the long-term growth rate of the economy. The terminal growth rate is the growth rate used to estimate the terminal value of a business. Interest expenses from borrowing should be subtracted from EBIT to estimate free cash flow to firm.
The present value of the expected net cash inflows for a project will most likely exceed the present value of the expected net profit after tax for the same project because Group of answer choices Cash flow reflects any change in net working capital, but sales do not. Income is reduced by dividends paid, but cash flow is not. Income is reduced by depreciation charges, but cash flow is not. Income is reduced by taxes paid, but cash flow is not. There is a greater probability of realizing the projected cash flow than the forecasted income.
1. what amount should be used as the initial cash flow for this project and why?? 2. What is the after-tax salvage value for the spectrometer? 3. What is the MPV of the project? Should the firm accept or reject this project?
As a company, to minimize the present worth of taxes paid to the federal government, use longest MACRS recovery period. true or false?
Overall, you should find conflicting recommendations based on the various criteria. Why is this occuring?
To calculate the initial project cash flow, this problem requires Using only the purchase price of the lot. Using today's market value for the land Using today's market value for the land plus the other costs O Using the purchase price of the lot plus the other costs