MANAGERIAL ACCOUNTING FOR MANAGERS
MANAGERIAL ACCOUNTING FOR MANAGERS
6th Edition
ISBN: 9781265365615
Author: Noreen
Publisher: MCG
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Chapter 7C, Problem 7C.5P

Income Taxes and Net Present Value Analysis LO7—5, L07—B

Shimano Company has an opportunity to manufacture and sell one of two new products for a five-year period. The company’s tax rate is 30% and its after-tax cost of capital is 14%. The cost and revenue estimates for each product are as follows:

Chapter 7C, Problem 7C.5P, Income Taxes and Net Present Value Analysis LO7—5, L07—B Shimano Company has an opportunity to

Required:

  1. Calculate the annual income tax expense for each of Years 1 through 5 that will arise if Product A is introduced.
  2. Calculate the net present value of the investment opportunity pertaining to Product A.
  3. Calculate the annual income tax expense for each of Years 1 through 5 that will arise if Product B is introduced.
  4. Calculate the net present value of the investment opportunity pertaining to Product B.
  5. Calculate the project profitability index for Product A and Product B. Which of the two products should the company pursue? Why?

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Chapter 7 ATCF 1A company has and effective income Tax Rate of 38%. The company must choose one of the following exclusive disinfection equipmets. The after tax MARR is 6% per year. Which altermatives should be selected using : INCREMENTAL ANALYSIS -ATCF-using PW tax= 38% MARR=6% Alternative 12.000 3.000 2000 Altemative 30,000 Captal investment Annual Net Ravenues Salvage Value Useful Me 9.000 3.000 MACRS-SL-ADS 3 MACRS-GDS 3 Depreciation Mathed recovery period recovery period Note: MACRS-GDS 3 recovery periods rates are .3333 4445 13 .1481 .0741
Question number 39
QUESTION 1 A new machine is to be purchased for $200,000. The company believes it will generate $75,000 annually in revenue due to the purchase of this machine. The company will have to train an operator to run this machine and this will result in additional labor expenses of $25,000 annually. The new machine will be depreciated using 5 years MACRS, even though the life of the project is 7 years, and the salvage value is estimated to be $0 at the end of year 7. The tax rate is 40% and the company's MARR is 15%.
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