Zencorp is considering buying a $220,000 production machine. It would be depreciated (simplified straight line) for10 years. This investment would allow the firm to increase sales by $130,000 per year. Operating expenses wouldincrease by $80,000 per year also. The corporate tax rate is 21%. What is the annual cash flow for the project?O $75,720O $44,120O $170,520O $71,100O $53,720

Given that;Cost of the machine is $220,000Depreciation period is 10 yearsSo, the salvage value after…

Answered: Zencorp is considering buying a…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $20 million, and production and sales will require an initial $4 million investment in net operating working capital. The company's tax rate is 25%. Enter your answers as a positive values. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answers to two decimal places. What is the initial investment outlay? $ million The company spent and expensed $150,000 on research related to the new project last year. What is the initial investment outlay? $ million Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for $1.4 million after taxes and real estate commissions. What is the initial investment outlay? $ million
A corporation is considering purchasing a machine that will save $150,000 per year before taxes. The cost of operating the machine (including maintenance) is $30,000 per year. The machine will be needed for five years, after which it will have a zero salvage value. MACRS depreciation will be used, assuming a three-year class life. The marginal income tax rate is 25%. If the firm wants 15% return on investment after taxes, how much can it afford to pay for this machine? If the firm wants 15% return on investment after taxes, it can afford to pay ?.
A firm is considering a new four-year expansion project. The project is estimated to generate $3 million in annual sales, with costs of $1,250,000. The depreciation expense would be $900,000. The tax rate is 25 percent. What is the project's operating cash flow? $850,000 O $637,500 O $1,537,500 O $1,312,500
Van Nuys Company is considering the purchase of a new machine which will cost $7.370. The machine will provide revenues of $4,000 per year. The cash operating costs will be $2,000 per year. The new machine will have a useful life of six years. The company's cost of capital is 12 percent. Ignore income taxes. Should the company buy the new machine? Yes, because NPV=0 and IRR0 and IRR>Cost of Capital No, because NPV>0 and IRR0 and IRR>Cost of Capital O Yes, because NPV = IRR Question 4
A company is considering purchasing a new piece of equipment that costs $100,000 and has an estimated useful life of 5 years. The equipment should increase annual cash receipts by $80,000 per year. Cash expenses to operate the equipment should be $25,000. The company uses straight-line depreciation. If the after-tax cost of capital is 10% and the tax rate is (Round your 30%, the net present value of this project based on the tables in the appendix is $ answer to the nearest whole number.) Need help? Review these concept resources. Read About the Concept
A corporation is considering purchasing a machine that will save $150,000 per year before taxes. The cost of operating the machine (including maintenance) is $30,000 per year. The machine will be needed for five years, after which it will have a zero salvage value. MACRS depreciation will be used, assuming a three-year class life. The marginal income tax rate is 25%. If the firm wants 15% return on investment after taxes, how much can it afford to pay for this machine? Click the icon to view the MACRS depreciation schedules Click the icon to view the interest factors for discrete compounding when /- 15% per year. If the firm wants 15% return on investment after taxes, it can afford to pay thousand for this machine. (Round to one decimal place.)
Strange Manufacturing Co. is purchasing a production facility at a cost of $21 million. The firm expects the project to generate annual cash flows of $7 million annually over the next five years. Its cost of capital is 10%. What is the net present value of this project? O $5,535,507 O $6,535,507 O $6,213,909 O $890,197
A firm is considering taking a project that will produce $12 million of revenue per year. Cash expenses will be $5 million, and depreciation expenses will be $1 million per year. If the firm takes that project, then it will reduce the cash revenues of an existing project by $3 million. What is the free cash flow on the project, per year, if the firm uses a 40 percent marginal tax rate? O$2.8 million O $2.4 million 0 $4.6 million $3.4 million
Tannen Industries is considering an expansion. The necessary equipment would be purchased for $12 million, and the expansion would require an additional $3 million investment in net operating working capital. The tax rate is 40%. What is the initial investment outlay? Write out your answer completely. For example, 13 million should be entered as 13,000,000. Round your answer to the nearest dollar. Enter your answer as a positive value.$
Dry-Sand Company is considering investing in a new project. The project will need an initial investment of $3,000,000 and will generate $1,800,000 (after-tax) cash flows for three years. Calculate the MIRR (modified internal rate of return) for the project if the cost of capital is 13%. 18.62% 23.43% 26.91% 28.72%
A project requires an initial investment of $100,000 and is expected to produce a cash inflow before tax of $27,300 per year for five years. Company A has substantial accumulated tax losses and is unlikely to pay taxes in the foreseeable future. Company B pays corporate taxes at a rate of 21% and can claim 100% bonus depreciation on the investment. Suppose the opportunity cost of capital is 10%. Ignore inflation.a. Calculate project NPV for each company. (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.) b. What is the IRR of the after-tax cash flows for each company? (Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal places.)
None

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