### Evaluating Project Tax Rate for Year 1XYZ Corporation is assessing a project that would necessitate the purchase of a piece of technological equipment for $560,000 today. The company would need to borrow $560,000 to fund the equipment acquisition and is evaluating the tax rate expected to be applicable in the first year of the project (Year 1).#### Financial Projections for Year 1:- **Revenue**: $761,000 - **Relevant Costs**: $205,000 - **Depreciation**: $130,000 - **Interest Payment**: $38,000 - **Net Income**: $337,000With these projections in mind, XYZ Corporation aims to determine the expected tax rate for Year 1. Choose the relevant tax rate from the options below:1. A rate less than 16.43%2. A rate equal to or greater than 16.43% but less than 21.92%3. A rate equal to or greater than 21.92% but less than 24.67%4. A rate equal to or greater than 24.67% but less than 35.22%5. A rate equal to or greater than 35.22% but less than 52.83%This detailed evaluation will help the company in understanding the tax implications and making informed decisions regarding the project's financial viability.

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Description: ### Evaluating Project Tax Rate for Year 1XYZ Corporation is assessing a project that would necessitate the purchase of a piece of technological equipment for $560,000 today. The company would need to borrow $560,000 to fund the equipment acquisitio

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XYZ is evaluating a project that would require the purchase of a piece of equipment for $560,000 today. During year 1, the project is expected to have relevant revenue of $761,000, relevant costs of $205,000, and relevant depreciation of $130,000. XYZ would need to borrow $560,000 today to pay for the equipment and would need to make an interest income for the project in year 1 is expected to be $337,000. What is the tax rate expected to be in year 1? net O A rate less than 16.43% or a rate greater than 52.83% A rate equal to or greater than 16.43% but less than 21.92% A rate equal to or greater than 21.92% but less than 24.67% O A rate equal to or greater than 24.67% but less than 35.22% O A rate equal to or greater than 35.22% but less than 52.83% payment of $38,000 to the bank in 1 year. Relevant

XYZ is evaluating a project that would require the purchase of a piece of equipment for $560,000 today. During year 1, the project is expected to have relevant revenue of $761,000, relevant costs of $205,000, and relevant depreciation of $130,000. XYZ would need to borrow $560,000 today to pay for the equipment and would need to make an interest income for the project in year 1 is expected to be $337,000. What is the tax rate expected to be in year 1? net O A rate less than 16.43% or a rate greater than 52.83% A rate equal to or greater than 16.43% but less than 21.92% A rate equal to or greater than 21.92% but less than 24.67% O A rate equal to or greater than 24.67% but less than 35.22% O A rate equal to or greater than 35.22% but less than 52.83% payment of $38,000 to the bank in 1 year. Relevant

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter13: Capital Budgeting: Estimating Cash Flows And Analyzing Risk

Section: Chapter Questions

Problem 2P

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2. Calculating Project NPV The Fleming Company is considering a new investment. Financial projections for the investment are tabulated below. The corporate tax rate is 22 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project. Investment Sales revenue Operating costs Depreciation Net working capital spending Year 0 $32,800 450 Year 1 Year 2 Year 3 Year 4 $14,200 2,100 8,200 175 $15,900 $15,700 2,100 2,100 8,200 8,200 250 275 $12,900 2,100 8,200 ? a. Compute the incremental net income of the investment for each year. b. Compute the incremental cash flows of the investment for each year. c. Suppose the appropriate discount rate is 12 percent. What is the NPV of the project?
q4- Project A requires an initial outlay of $10000 and will last for 5 years. The investment will be depreciated using straight‐line depreciation to a book value of 0 over the life of the project. The corporate tax rate is 30% and the required rate of return is 8%. What is the annual depreciation amount for Project A?
Question 3 A company is considering investing in three projects A, B and C with initial investment of $1,200 and a life of 5 years. The following table indicates the profits that are estimated from each project: After Tax & Depreciation Profits Year Project A Project B Project C 1 300 300 450 2 300 200 450 3 300 400 350 4 300 350 100 5 300 350 100 Total 1,500 1,600 1,450 Required: Calculate the Accounting Rate of Return on initial capital for each project. Calculate the Accounting Rate of Return on average capital for each project. Assuming that financing is available outline three (3) major factors which will influence the investor’s decision to invest. State two (2) drawbacks of the Accounting Rate of Return method of project appraisal.
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Q. A project requires an initial investment in machinery of $400,000. Additional cash inflows of $150,000 at current price levels are expected for three years, at the end of which time the machinery will be scrapped. The machinery will attract tax-allowable depreciation of 30% on the RB basis, which can be claimed against taxable profits of the current year, which is soon to end. A balancing charge or allowance will arise on disposal. The tax rate is 40% and tax is payable 50% in the current year, 50% one year in arrears. The pre-tax cost of capital is 22% and the rate of inflation is 10%. Assume that the project is 100% debt financed. Required Assess whether the project should be undertaken.
A project capitalized for P 2,850,000 invested in depreciable asset will earn a uniform annual revenue of P 1,650,000 for 10 years. The costs for operation and maintenance total P 725,000 a year, and taxes and insurance will cost 3% of the first cost each year. The company expects its capital to earn 14% before income taxes. *** Type the letter of the correct answer. • Using PW method 1. PWIN is: a) P 6,454,943.11 2. PWOUT is: a) P 5,308,246.30 3. PWNET is: a) P 1,681,821.99 b) P 9,467,249.90 b) P 7,077,661.73 b) P 1,528,929.09 • Using Payback Period method 4. What is the payback period? a) 3.39 years b) 1.13 years c) P 5,163,954.49 c) P 7,785,427.90 c) P 1,146,696.81 c) 2.55 years d) P 8,606,590.82 d) P 4,246,597.04 d) P 917,357.45 d) 1.70 years
q4c- Project A requires an initial outlay of $10000 and will last for 5 years. The investment will be depreciated using straight‐line depreciation to a book value of 0 over the life of the project. The corporate tax rate is 30% and the required rate of return is 8%. What is the total depreciation tax shield over the life of Project A?
Question 1 A company has two projects to choose from with the following annual after-tax cash flows: Project A Investment (today) $700,000 Investment (Year 1) $300,000 Years 2-8 S700,000 Project B Investment (today) $1,600,000 Years 1-8 S725,000 The firm's cost of capital is 12 percent. Compute both projects' payback period and discounted payback period.
Problem 1 The Bird Co. is considering a 7-year project that would require a cash outlay of $160,000 for machinery and an additional $25,000 for working capital that would be released at the end of the project. The equipment would be depreciated evenly over the 7 years and have a salvage value of $10,000 at the end of 7 years. The project would generate before tax annual cash inflows of $50,000. The tax rate is 21% and the company's discount rate is 14%. What is the net present value? What is the internal rate of return? Would you recommend this project or not? Why?
Problem 1 The Bird Co. is considering a 7-year project that would require a cash outlay of $160,000 for machinery and an additional $25,000 for working capital that would be released at the end of the project. The equipment would be depreciated evenly over the 7 years and have a salvage value of $10,000 at the end of 7 years. The project would generate before tax annual cash inflows of $50,000. The tax rate is 21% and the company's discount rate is 14%. What is the discounted payback based upon the initial cash outflows? What is the net present value? What is the internal rate of return?
Problem 1 The Bird Co. is considering a 7-year project that would require a cash outlay of $160,000 for machinery and an additional $25,000 for working capital that would be released at the end of the project. The equipment would be depreciated evenly over the 7 years and have a salvage value of $10,000 at the end of 7 years. The project would generate before tax annual cash inflows of $50,000. The tax rate is 21% and the company's discount rate is 14%. What is the annual accounting income? What is the annual after-tax cash flow? What is the payback based upon the initial cash outflows? What is the discounted payback based upon the initial cash outflows?
Question 3 A company has $20 million available to invest in new projects. There are three independent projects that it is considering. The after-tax cash flows of the projects are as follows: Project ABC Year 0 cash flow (20 million) (10 million) (10 million) Year 1 cash flow 20 million 8 million 6 million Year 2 cash flow 10 million 7 million 10 million Calculate the IRR, PI and NPV of each of the two-year projects and recommend which project(s) the company should invest in (and why). The company's cost of capital is 12%.