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Winthrop Company has an opportunity to manufacture and sell a new product To pursue this opportunity, the company would need to purchase a piece of equipment for $160,000. The equipment would have a useful life of five years and zero salvage value. It would be depreciated for financial reporting and tax purposes using the straight-line method. After careful study, Winthrop estimated the following annual costs and revenues for the new product: Annual revenues and costs: Sales revenues $ 310,000 $ 150,000 $ 76,000 Variable expenses Fixed out-of-pocket operating costs The company's tax rate is 30% and its after-tax cost of capital is 16%. Required: 1. Calculate the annual income tax expense that will arise as a result of this investment. 2. Calculate the net present value of this investment opportunity. Note: Round your final answer to the nearest whole dollar. 1. Annual income tax expense 2. Net present value

Winthrop Company has an opportunity to manufacture and sell a new product To pursue this opportunity, the company would need to purchase a piece of equipment for $160,000. The equipment would have a useful life of five years and zero salvage value. It would be depreciated for financial reporting and tax purposes using the straight-line method. After careful study, Winthrop estimated the following annual costs and revenues for the new product: Annual revenues and costs: Sales revenues $ 310,000 $ 150,000 $ 76,000 Variable expenses Fixed out-of-pocket operating costs The company's tax rate is 30% and its after-tax cost of capital is 16%. Required: 1. Calculate the annual income tax expense that will arise as a result of this investment. 2. Calculate the net present value of this investment opportunity. Note: Round your final answer to the nearest whole dollar. 1. Annual income tax expense 2. Net present value

FINANCIAL ACCOUNTING
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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Winthrop Company has an opportunity to manufacture and sell a new product for a five-year period. To pursue this opportunity, the company would need to purchase a piece of equipment for $160,000. The equipment would have a useful life of five years and zero salvage value. It would be depreciated for financial reporting and tax purposes using the straight-line method. After careful study, Winthrop estimated the following annual costs and revenues for the new product: Annual revenues and costs: Sales revenues $ 310,000 $ 150,000 $ 76,000 Variable expenses Fixed out-of-pocket operating costs The company's tax rate is 30% and its after-tax cost of capital is 16%. Required: 1. Calculate the annual income tax expense that will arise as a result of this investment. 2. Calculate the net present value of this investment opportunity. Note: Round your final answer to the nearest whole dollar. 1. Annual income tax expense 2. Net present value
Transcribed Image Text:Winthrop Company has an opportunity to manufacture and sell a new product for a five-year period. To pursue this opportunity, the company would need to purchase a piece of equipment for $160,000. The equipment would have a useful life of five years and zero salvage value. It would be depreciated for financial reporting and tax purposes using the straight-line method. After careful study, Winthrop estimated the following annual costs and revenues for the new product: Annual revenues and costs: Sales revenues $ 310,000 $ 150,000 $ 76,000 Variable expenses Fixed out-of-pocket operating costs The company's tax rate is 30% and its after-tax cost of capital is 16%. Required: 1. Calculate the annual income tax expense that will arise as a result of this investment. 2. Calculate the net present value of this investment opportunity. Note: Round your final answer to the nearest whole dollar. 1. Annual income tax expense 2. Net present value
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