172
145) Vore Corporation is considering a capital budgeting project that involves investing $570,000
in equipment that would have a useful life of 3 years and zero salvage value. The net annual
operating cash inflow, which is the difference between the incremental sales revenue and
incremental cash operating expenses, would be $280,000 per year. The project would require a
one-time renovation expense of $60,000 at the end of year 2. The company uses straight-line
depreciation and the depreciation expense on the equipment would be $190,000 per year. Assume
cash flows occur at the end of the year except for the initial investments. The company takes
income taxes into account in its capital budgeting. The income tax rate is 30%. The after-tax
discount rate is 8%.
Required:
Determine the net present value of the project. Show your work!
146) Przewozman Corporation has provided the following information concerning a capital
173
budgeting project:
After-tax discount rate
13
%
Tax rate
30
%
Expected life of the project
4
Investment required in equipment
$
120,000
Salvage value of equipment
$
0
Working capital requirement
$
20,000
Annual sales
$
290,000
Annual cash operating expenses
$
210,000
One-time renovation expense in year 3
$
40,000
The working capital would be required immediately and would be released for use elsewhere at the
end of the project. The company uses straight-line depreciation on all equipment. Assume cash
flows occur at the end of the year except for the initial investments. The company takes income
taxes into account in its capital budgeting.
Required:
Determine the net present value of the project. Show your work!
175
147) Sester Corporation has provided the following information concerning a capital budgeting
project:
Investment required in equipment
$
750,000
Net annual operating cash inflow
$
360,000
One-time renovation expense in year 2
$
70,000
Tax rate
30
%
After-tax discount rate
7
%
The expected life of the project and the equipment is 3 years and the equipment has zero salvage
value. The company uses straight-line depreciation on all equipment and the depreciation expense
on the equipment would be $250,000 per year. Assume cash flows occur at the end of the year
except for the initial investments. The company takes income taxes into account in its capital
budgeting. The net annual operating cash inflow is the difference between the incremental sales
revenue and incremental cash operating expenses.
Required:
Determine the net present value of the project. Show your work!
177
148) Porco Corporation is considering a capital budgeting project that would require investing
$280,000 in equipment with a 4 year useful life and zero salvage value. Annual incremental sales
would be $680,000 and annual incremental cash operating expenses would be $480,000. A
one-time expense of $90,000 for renovations would be required in year 3. An investment of
$20,000 in working capital would be required immediately and would be released for use
elsewhere at the end of the project. The company uses straight-line depreciation on all equipment.
Assume cash flows occur at the end of the year except for the initial investments. The company
takes income taxes into account in its capital budgeting. The company’s tax rate is 30% and the
after-tax discount rate is 12%.
Required:
Determine the net present value of the project. Show your work!
149) Roemen Corporation is considering a capital budgeting project that would require investing
$160,000 in equipment with a 4 year useful life and zero salvage value. Annual incremental sales
would be $410,000 and annual incremental cash operating expenses would be $280,000. An
investment of $20,000 in working capital would be required immediately and would be released
for use elsewhere at the end of the project. The company uses straight-line depreciation on all
equipment. Assume cash flows occur at the end of the year except for the initial investments. The
company takes income taxes into account in its capital budgeting. The company’s tax rate is 30%
and the after-tax discount rate is 12%.
Required:
Determine the net present value of the project. Show your work!
180
150) Newfield Corporation has provided the following information concerning a capital budgeting
project:
Investment required in equipment
$
120,000
Expected life of the project
4
Salvage value of equipment
$
0
Annual sales
$
280,000
Annual cash operating expenses
$
210,000
One-time renovation expense in year 3
$
20,000
The company uses straight-line depreciation. The depreciation expense will be $30,000 per year.
Assume cash flows occur at the end of the year except for the initial investments. The company
takes income taxes into account in its capital budgeting. The income tax rate is 30% and the
after-tax discount rate is 13%.
Required:
Determine the net present value of the project. Show your work!
