Need help with this accounting questions XYZ Corp is evaluating a new project with the following data. Theequipment has a 5-year tax life but is eligible for 100% bonusdepreciation at t=0. The equipment has no salvage value at projectend, and no additional working capital is needed. The project'soperating life is 8 years with constant revenues and costs. Calculatethe project's Year 3 cash flow.Given:⚫ Equipment cost: $100,000Annual sales revenue: $45,000Annual operating costs: $30,000Tax rate: 30%

To calculate the project's Year 3 cash flow, we need to determine the after-tax operating cash flow,…

Answered: XYZ Corp is evaluating a new project…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 13P

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Friedman Company is considering installing a new IT system. The cost of the new system is estimated to be 2,250,000, but it would produce after-tax savings of 450,000 per year in labor costs. The estimated life of the new system is 10 years, with no salvage value expected. Intrigued by the possibility of saving 450,000 per year and having a more reliable information system, the president of Friedman has asked for an analysis of the projects economic viability. All capital projects are required to earn at least the firms cost of capital, which is 12 percent. Required: 1. Calculate the projects internal rate of return. Should the company acquire the new IT system? 2. Suppose that savings are less than claimed. Calculate the minimum annual cash savings that must be realized for the project to earn a rate equal to the firms cost of capital. Comment on the safety margin that exists, if any. 3. Suppose that the life of the IT system is overestimated by two years. Repeat Requirements 1 and 2 under this assumption. Comment on the usefulness of this information.
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F
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