You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for$50,000. The truck falls into the MACRS 3-year class, is not eligible for either bonus depreciation or Section 179 expensing, and it willbe sold after three years for $19,100. Use of the truck will require an increase in NWC (spare parts inventory) of $1,100. The truck willhave no effect on revenues, but it is expected to save the firm $17,200 per year in before-tax operating costs, mainly labor. The firm'smarginal tax rate is 21 percent.What will the cash flows for this project be? (Negative amounts should be indicated by a minus sign. Round your answers to 2decimal places.)Year123FCF

In year 0, the cash flow would consist mainly of investment made in the truck and net working…

Answered: What will the cash flows for this…

Business

Accounting

What will the cash flows for this project be?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: What is alternative cash flow measures?

A: Cash flow refers to the amount of cash that moves in and out of the business because of its…

Q: How can we use the internal rate of return to evaluate whether we should pursue a specific project?…

A: It is important for the investors to evaluate the project in all aspects before making any…

Q: how many of the following investment criteria always use all of a projects cash flows in their…

A: Project cash flows generally refers to cash amount which is generated from investment which ignores…

Q: Is it worth the effort to estimate daily project cash flows? Would doing so be helpful in the…

A: Cashflows are usually estimating yearly and then discounted at an appropriate discount rate

Q: Additional information: 1. Net income was $18,450. Dividends declared and paid were $14,300. 2.…

A: To find the free cash flow, we must first compute the operational cash flow and then subtract the…

Q: The relationship between project cash flows, taxes and inflation.

A: Cash flows is the flow of money in or out from the business. There are two types of cash flows which…

Q: what is the importance of cash flow management when evaluating proposals for capital expenditure?

A: The cash flow management is related to management of inflows of cash and outflows of cash with…

Q: When considering a project’s Operating Cash Flows, where are Financing Costs included?

A: Financing cost is the cost of the debt taken by the company which would be used for financing the…

Q: Consider two investment projects with the following cash flow transactions: Compute the rate of…

A: YEAR PROJECT 1 PROJECT 2 0 -3000.00 -2000.00 1 0.00 1300.00 2 0.00 1500.00 3 0.00…

Q: What is nonnormal cash flow projects?

A: Introduction: Cash flow is the cash or cash equivalent transferred from in and out of business.

Q: Please provide examples of the cash inflows and outflows that may be considered when considering a…

A: The capital project is the project that helps in the improvement of various capital assets. It is…

Q: 11-2 What is the expected return of the following investment? Probability Payoff 0.3 30.0% 0.2 10.0…

A: The expected return is the minimum required rate of return which an investor required from the…

Q: You are a manager at Percolated Fiber, which is considering expanding its operations. Your boss said…

A: Depreciation is a non cash expenses. So this expense should be added back to calculate the free cash…

Q: How many of the following investment criteria always use all of a project's cash flows in their…

A: Capital budgeting techniques are used to determine whether the projects undertaken are profitable to…

Q: How can the money released from a project be reinvested to yield a rate of return equal to that…

A: A rate of return can provide brokers and investors key data for future trades or investments. The…

Q: The net present value of a capital budgeting project is ________. The difference between the…

A: The present value factor is considered as one of the important techniques which are used by the…

Q: How can we easily automate the process of computing the net present worthof any project cash flow…

A: Net present value (NPV) is the contrast between the present value of money inflows over some…

Q: Describe the process of developing cash flows for a project?

A: The project cash flow is required for the computation of NPV which further helps in analyzing the…

Q: which of the following do you need to know to calculate the IRR of a project?. 1. project's…

A: Companies use capital budgeting techniques to evaluate the projects. IRR is internal rate of return.…

Q: What is normal cash flow project?

A: Cash flow refers to the amount of cash that the company receives from investing into a project.…

Q: Depending on the cash flow assumption, should the project must use continuous cash flow? why?

A: In continuous discounting and continuous cash flows, the assumption is that the cash stream happens…

Q: Which of the following should you focus when assessing the NPV of a project for a MNC? I.…

A: Net Present Value (NPV) is the technique of capital budgeting which defines the profitability of the…

Q: Which of the following projects have conventional cash-flow streams? Select all that are…

A: Solution:- Conventional cash flow stream is that cash flow stream in which the sign of cash flows…

Q: What is the process of Developing Project Cash Flow Statements?

A: The cash flow statement for the Project is required to keep check the on cash incoming and cash…

Q: Q1 A company is evaluating three possible investments. Each uses the straight-line method of…

A: Computation of Average Investment is as follows: Average investment =Initial value+Salvage…

Q: Why do we need to predict how certain costs will behave in response to change activity in project…

A: Cash flow analysis is the way by which financial health of the company can be checked. In this…

Q: Why is risk incorporated into capital budgeting and how is it incorporated into the process of…

A: Capital budgeting is the process of evaluating different investment projects that require capital…

Q: 2. What are the free cash flows that are relevant to analyzing the two projects? Compute the NPVs of…

A: Free cashflow is calculated using formula:FCFF = EBIT - Taxes + Depreciation - Capex - Change in NWC…

Q: How do you evaluate an asset whose value is dependent on future cash flow expectations

A: The Answer :

Q: The best model to analyze the project financially is cash flow. Select one: O True O False

A: To evaluate a project for its acceptability, we need to analyze its profit generating ability.…

Q: Sunland Corporation is reviewing an investment proposal. The initial cost is $104,400. Estimates of…

Q: Relate the idea of cost of capital to the opportunity cost concept. Is the cost of capital the…

A: The total cost of financing current projects (or projects under consideration) will be the financial…

Q: Illustrate the conventional payback period, annual project cash flow over the life of project, and…

A: The illustration is shown below:

Q: Mathematically, how can we determine the rate of return for a project's cash flow?

A: IRRIt is the capital budgeting technique of discounted cash flow which gives a rate of return being…

Q: Should financing costs be included as an incremental cash flow in capital budgeting analysis?…

A: Financing ost will be reflective of all such cost which are incurred due to financing of a…

Q: statement of cash flows for the year ended 31 December 2018, od, adopting the format in IAS 7…

A: Cash flow statement: It gives information about the changes in cash and cash equivalents of an…

Q: How can we predict the future cash flows in a project?

A: Cash flows refer to the amount of net cash and cash equivalents that flow in and out of the…

Q: Total shareholders' equity, beginning balances Common stock and additional paid-in capital:…

A: (1) Total Payout: It is a broader term that encompasses any form of payment made by a company to its…

Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for
$50,000. The truck falls into the MACRS 3-year class, is not eligible for either bonus depreciation or Section 179 expensing, and it will
be sold after three years for $19,100. Use of the truck will require an increase in NWC (spare parts inventory) of $1,100. The truck will
have no effect on revenues, but it is expected to save the firm $17,200 per year in before-tax operating costs, mainly labor. The firm's
marginal tax rate is 21 percent.
What will the cash flows for this project be? (Negative amounts should be indicated by a minus sign. Round your answers to 2
decimal places.)
Year
1
2
3
FCF

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

Explain how to find the value of a capital budgeting project given its cost, its expected annualnet cash flows, its life, and its cost of capital.
How to calculate cash payback period for this investment
What is the procedure of developing Project Cash Flow Statements?
How can we determine the project cash flows in the absence of inflation?
What do we call the cost of capital at which the two projects have the same NPV?
Define each of the following terms:b. Incremental cash flow; sunk cost; opportunity cost; externality; cannibalization; expansion project; replacement project
How do we develop the project cash flows, after taxes, over the life of the project?
Determine the cash inflow of the project
What is the formula for calculating present value of a project? If you are given annual profit in perpetuity, initial cost, tax rate, unlevered cost of equity, and how much of the project cost is finance through debt?
The future benefits received from investing in a project are the projects? Net cash flows Net investment Net cost Net return
What is the project's cash flow?