Managerial Accounting for Managers
4th Edition
ISBN: 9781259578540
Author: Eric Noreen, Peter C. Brewer Professor, Ray H Garrison
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 8C, Problem 8C.5P
Income Taxes and
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:
Required:
- Calculate the annual income tax expense for each of Years 1 through 5 that will arise if Product A is introduced.
- Calculate the net present value of the investment opportunity pertaining to Product A.
- Calculate the annual income tax expense for each of Years 1 through 5 that will arise if Product B is introduced.
- Calculate the net present value of the investment opportunity pertaining to Product B.
- 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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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%.
Chapter 8C Solutions
Managerial Accounting for Managers
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