Net present value : Net present value is the difference between the present values of cash inflows minus present value of cash outflows. Calculate the cost of retained earnings are as follows: Net present value = Present value of cash inflows − Initial investment Decision rule: NPV > 0 Accept the project NPV < 0 Reject the project RR is determining to purchase an asset which has cost of $432,000 and installation cost of $52,000. Asset is classified under three years MACRS class and can be sold after three years for $220,000. Savings from the machine is $185,000 and working capital requires is $22,000. Life of the project is 3 years, tax rate is 40% and required rate of return is 14%.

Question

The Talley Corporation had taxable operating income of $365,000 (i.e., earnings from operating revenues minus all operating costs). Talley also had (1) interest charges of $50,000, (2) dividends received of $25,000, and (3) dividends paid of $35,000. Its federal tax rate was 21% (ignore any possible state corporate taxes). Recall that 50% of dividends received are tax exempt. What is the firm’s taxable income? What is the tax expense? What is the after-tax income?

Answer 1

Question

Chapter 10, Problem 11PROB

Summary Introduction

Net present value:

Net present value is the difference between the present values of cash inflows minus present value of cash outflows.

Calculate the cost of retained earnings are as follows:

Net present value=Present value of cash inflows−Initial investment

Decision rule:

NPV>0 Accept the projectNPV<0 Reject the project

RR is determining to purchase an asset which has cost of $432,000 and installation cost of $52,000. Asset is classified under three years MACRS class and can be sold after three years for $220,000. Savings from the machine is $185,000 and working capital requires is $22,000. Life of the project is 3 years, tax rate is 40% and required rate of return is 14%.

Expert Solution & Answer

Trending nowThis is a popular solution!

See solution

Check out sample textbook solution

Students have asked these similar questions

The Talley Corporation had taxable operating income of $365,000 (i.e., earnings from operating revenues minus all operating costs). Talley also had (1) interest charges of $50,000, (2) dividends received of $25,000, and (3) dividends paid of $35,000. Its federal tax rate was 21% (ignore any possible state corporate taxes). Recall that 50% of dividends received are tax exempt. What is the firm’s taxable income? What is the tax expense? What is the after-tax income?

A real estate broker insures an office building for $500,000 under a Building and Personal Property Coverage Form with a Causes of Loss-Broad Form attached. If smoke from a nearby industrial factory enters the office building and causes $10,000 in damage to the interior, the policy will pay a MAXIMUM of which of the following amounts? a. $0 b. $1,000 c. $5,000 d. $10,000

National Bank currently has $500 million in transaction deposits on its balance sheet. The current reserve requirement is 10 percent, but the Federal Reserve is decreasing this requirement to 8 percent. Show the balance sheet of the Federal Reserve and National Bank if National Bank converts all excess reserves to loans, but borrowers return only 50 percent of these funds to National Bank as transaction deposits. Show the balance sheet of the Federal Reserve and National Bank if National Bank converts 75 percent of its excess reserves to loans and borrowers return 60 percent of these funds to National Bank as transaction deposits.