Loose Leaf for McGraw-Hill's Taxation of Individuals and Business Entities 2019 Edition
10th Edition
ISBN: 9781260189728
Author: Brian C. Spilker Professor, Benjamin C. Ayers, John Robinson Professor, Edmund Outslay Professor, Ronald G. Worsham Associate Professor, John A. Barrick Assistant Professor, Connie Weaver
Publisher: McGraw-Hill Education
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Chapter 3, Problem 54P
To determine
Identify which state should be selected by Company H and explain the reason why the plant in the lower tax rate would produce a lower before-tax income.
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Hyundai is considering opening a plant in two neighboring states.
Option 1: One state has a corporate tax rate of 10 percent. If operated in this state, the plant is expected to generate $1,250,000 pretax profit.
Option 2: The other state has a corporate tax rate of 2 percent. If operated in this state, the plant is expected to generate $1,180,000 of pretax profit.
Required:
What is the after-state-taxes profit in the state with the 10% tax rate?
What is the after-state-taxes profit in the state with the 2% tax rate?
Which state should Hyundai choose?
An energy firm is betting on wind power's long-term viability in Texas and plans to erect what would be one of the biggest wind farms in the world with 200 wind turbines costing some $1.69 million each. Energy companies investing in wind power are also expecting governments to toughen rules relating to traditional energy sources, as part of long-term efforts to reduce global-warming emissions. But generating power from wind is not profitable for companies without government tax breaks. The following financial and technical data have been compiled for furtherconsideration:
• Number of wind turbines to be built: 200 units• Power capacity: 310,000 kW• Capital investment required: $338,000,000• Project life: 20 years• Salvage value of the wind turbines after 20 years: $0• Annual net cash flows {after all deductions): $41,391,160According to the data provided, answer the following questions:(a) What is the projected IRR on this investment?(b) If the company's MARR is known to be 10%, is the…
Suppose that Sudbury Mechanical Drifters is proposing to invest $20.0 million in a new factory. It can depreciate this investment
straight-line over 10 years. The tax rate is 40%, and the discount rate is 10%.
a. What is the present value of Sudbury's depreciation tax shields?
b. What would be the present value of the tax shield if the government allowed Sudbury to write-off the factory immediately?
Complete this question by entering your answers in the tabs below.
Required A
Required B
What is the present value of Sudbury's depreciation tax shields?
Note: Enter your answers in millions rounded to 1 decimal place.
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9 Year 10
Total
Depreciation straight-line, 10-year
Tax Shields at 40% tax rate
PV (Tax Shields) at 10%
Chapter 3 Solutions
Loose Leaf for McGraw-Hill's Taxation of Individuals and Business Entities 2019 Edition
Ch. 3 - 1. The goal of tax planning is to minimize taxes....Ch. 3 - Prob. 2DQCh. 3 - In this chapter we discussed three basic tax...Ch. 3 - What are the two basic timing strategies? What is...Ch. 3 - Prob. 5DQCh. 3 - What are some common examples of the timing...Ch. 3 - What factors increase the benefits of accelerating...Ch. 3 - How do changing tax rates affect the timing...Ch. 3 - Prob. 9DQCh. 3 - Prob. 10DQ
Ch. 3 - Prob. 11DQCh. 3 - What two factors increase the difference between...Ch. 3 - What factors have to be present for income...Ch. 3 - Prob. 14DQCh. 3 - Prob. 15DQCh. 3 - Prob. 16DQCh. 3 - Prob. 17DQCh. 3 - Prob. 18DQCh. 3 - Prob. 19DQCh. 3 - Explain how implicit taxes may limit the benefits...Ch. 3 - Prob. 21DQCh. 3 - Do after-tax rates of return for investments in...Ch. 3 - Prob. 23DQCh. 3 - Prob. 24DQCh. 3 - Prob. 25DQCh. 3 - What is an implicit tax and how does it affect a...Ch. 3 - Several judicial doctrines limit basic tax...Ch. 3 - What is the constructive receipt doctrine? What...Ch. 3 - Prob. 29DQCh. 3 - Relative to arms length transactions, why do...Ch. 3 - Prob. 31DQCh. 3 - Prob. 32DQCh. 3 - Prob. 33DQCh. 3 - Prob. 34DQCh. 3 - Yong recently paid his accountant 10,000 for...Ch. 3 - Billups, a physician and cash-method taxpayer, is...Ch. 3 - Prob. 37PCh. 3 - Prob. 38PCh. 3 - Prob. 39PCh. 3 - Prob. 40PCh. 3 - Prob. 41PCh. 3 - Prob. 42PCh. 3 - Prob. 43PCh. 3 - Prob. 44PCh. 3 - Prob. 45PCh. 3 - Prob. 46PCh. 3 - Prob. 47PCh. 3 - Prob. 48PCh. 3 - Prob. 49PCh. 3 - Prob. 50PCh. 3 - Prob. 51PCh. 3 - Prob. 52PCh. 3 - Prob. 53PCh. 3 - Prob. 54PCh. 3 - Prob. 55PCh. 3 - Prob. 56PCh. 3 - Prob. 57PCh. 3 - Prob. 58PCh. 3 - Prob. 59PCh. 3 - Prob. 60PCh. 3 - Prob. 61PCh. 3 - Prob. 62PCh. 3 - Prob. 63PCh. 3 - Prob. 64PCh. 3 - Prob. 65P
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- Suppose that Sudbury Mechanical Drifters is proposing to invest $10 million in a new factory. It can depreciate this investment straight-line over 10 years. The tax rate is 40%, and the discount rate is 10%. a. What is the present value of Sudbury's depreciation tax shields? b. What would be the present value of the tax shield if the government allowed Sudbury to write-off the factory immediately? Complete this question by entering your answers in the tabs below. Required A Required B What is the present value of Sudbury's depreciation tax shields? Note: Enter your answers in millions rounded to 1 decimal place. Depreciation straight-line, 10-year Tax Shields at 40% tax rate PV (Tax Shields) at 10% Year 1 Year 2 Year 3 Year 4 Year 5 Suppose that Sudbury Mechanical Drifters is proposing to invest $10 million in a new factory. It can depreciate this investment straight-line over 10 years. The tax rate is 40%, and the discount rate is 10%. a. What is the present value of Sudbury's…arrow_forwardLinksys is considering the development of a wireless home networking appliance, called HomeNet, that will provide both the hardware and the software necessary to run an entire home from any Internet connection. HomeNet's lab will be housed in warehouse space that the company could have otherwise rented out for $190,000 per year during years 1 through 4. The tax rate for Linksys is 20%. How does this opportunity cost affect HomeNet's incremental earnings? HomeNet will experience in incremental earnings of $ per year for the 4 years. (Select from the drop-down menu and round to the nearest dollar.)arrow_forwardA Garry Manufacturing Company is considering a three-year project that has a cost of $75,000. The project will generate after-tax cash flows of $33,100 in Year 1, $31,500 in Year 2, and $31,200 in Year 3. Assume that the firm's proper rate of discount is 10% and that the firm's tax rate is 40%. What is the project's payback and outline any limitations in using the payback period method in selecting acceptable projects? Tetious Dimensions is introducing a new product that is expected to increase it net operating income by $775,000. Tetious Dimensions has a 21% marginal tax rate. This project will also produce $200,000 of depreciation per year. In addition, this project will cause the following changes: Without the Project With the Project Accounts Receivable $55,000 $89,000 Inventory $100,000…arrow_forward
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