21
25) Eison Corporation has provided the following information concerning a capital budgeting
project:
After-tax discount rate
12
%
Tax rate
30
%
Expected life of the project
4
Investment required in equipment
$
280,000
Salvage value of equipment
$
0
Working capital requirement
$
20,000
Annual sales
$
610,000
Annual cash operating expenses
$
470,000
One-time renovation expense in year 3
$
50,000
The company uses straight-line depreciation on all equipment.
The income tax expense in year 3 is:
A) $21,000
B) $42,000
C) $15,000
D) $6,000
Calculate the annual tax expense:
Sales
$
610,000
Cash operating expenses
$
(470,000
)
One-time expense
$
(50,000
)
Depreciation expense
$
(70,000
)
Incremental net income
$
Tax rate
%
Income tax expense
$
26) Mcelveen Corporation has provided the following information concerning a capital budgeting
project:
13
%
30
%
4
$
80,000
$
0
$
20,000
$
180,000
$
130,000
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.
See separate Exhibit 13B-1 to determine the appropriate discount factor(s) using table.
The net present value of the project is closest to:
A) $60,960
B) $21,934
C) $84,000
D) $34,194
27) Inocencio Corporation has provided the following information concerning a capital budgeting
project:
Tax rate
30
%
Expected life of the project
4
Investment required in equipment
$
240,000
Salvage value of equipment
$
0
Annual sales
$
680,000
Annual cash operating expenses
$
470,000
One-time renovation expense in year 3
$
100,000
The company uses straight-line depreciation on all equipment.
The total cash flow net of income taxes in year 3 is:
A) $35,000
B) $95,000
C) $165,000
D) $110,000
28) Maurer Corporation is considering a capital budgeting project that would involve investing
$200,000 in equipment with an estimated useful life of 4 years and no salvage value at the end of
the useful life. Annual incremental sales from the project would be $550,000 and the annual
incremental cash operating expenses would be $440,000. A one-time renovation expense of
$40,000 would be required in year 3. The company’s income tax rate is 30%.
The company uses straight-line depreciation on all equipment.
The income tax expense in year 3 is:
A) $6,000
B) $33,000
C) $18,000
D) $21,000
29) Dobrinski Corporation has provided the following information concerning a capital budgeting
project:
14
%
30
%
4
$
240,000
$
0
$
30,000
$
630,000
$
480,000
$
60,000
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.
See separate Exhibit 13B-1 to determine the appropriate discount factor(s) using table.
The net present value of the project is closest to:
A) $144,210
B) $210,000
C) $77,709
D) $59,949
30) Truskowski Corporation has provided the following information concerning a capital
budgeting project:
After-tax discount rate
13
%
Tax rate
30
%
Expected life of the project
4
Investment required in equipment
$
240,000
Salvage value of equipment
$
0
Annual sales
$
600,000
Annual cash operating expenses
$
440,000
The company uses straight-line depreciation on all equipment; the annual depreciation expense
will be $60,000. 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.
See separate Exhibit 13B-1 to determine the appropriate discount factor(s) using table.
The net present value of the project is closest to:
A) $280,000
B) $386,620
C) $235,840
D) $146,620
31) Marasco Corporation has provided the following information concerning a capital budgeting
project:
Investment required in equipment
$
80,000
Salvage value of equipment
$
0
Expected life of the project
4
Annual sales
$
220,000
Annual cash operating expenses
$
160,000
One-time renovation expense in year 3
$
30,000
The income tax rate is 30%. The after-tax discount rate is 13%. The company uses straight-line
depreciation on all equipment; the annual depreciation expense will be $20,000. 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.
See separate Exhibit 13B-1 to determine the appropriate discount factor(s) using table.
The net present value of the project is closest to:
A) $91,000
B) $128,199
C) $77,650
D) $48,199
32) Antinoro Corporation has provided the following information concerning a capital budgeting
project:
12
%
30
%
4
$
200,000
$
0
$
20,000
$
480,000
$
360,000
$
60,000
The company uses straight-line depreciation on all equipment.
The income tax expense in year 2 is:
A) $3,000
B) $18,000
C) $36,000
D) $21,000
Calculate the annual tax expense:
Sales
$
Cash operating expenses
$
(360,000
)
Depreciation expense
$
)
Incremental net income
$
Income tax expense
$
)
33) Halwick Corporation is considering a capital budgeting project that would have a useful life of
4 years and would involve investing $120,000 in equipment that would have zero salvage value at
the end of the project. Annual incremental sales would be $360,000 and annual cash operating
expenses would be $280,000. The company uses straight-line depreciation on all equipment. Its
income tax rate is 30%.
The income tax expense in year 2 is:
A) $6,000
B) $9,000
C) $15,000
D) $24,000
34) Lennox Corporation has provided the following information concerning a capital budgeting
project:
Investment required in equipment
$
80,000
Expected life of the project
4
Salvage value of equipment
$
0
Annual sales
$
200,000
Annual cash operating expenses
$
150,000
One-time renovation expense in year 3
$
20,000
The company’s tax rate is 30%. The company’s after-tax discount rate is 8%. The project would
require an investment of $20,000 at the beginning of the project. This working capital would be
released for use elsewhere at the end of the project. The company uses straight-line depreciation on
all equipment.
The total cash flow of income in year 2 is:
A) $30,000
B) $26,000
C) $41,000
D) $50,000
Calculate the annual tax expense:
Sales
$
Cash operating expenses
$
(150,000
)
Depreciation expense
$
)
Incremental net income
$
Tax rate
%
Income tax expense
$
)
Sales
$
Cash operating expenses
$
(150,000
)
Income tax expense
$
)
Total cash flows
$
35) Barbera Corporation has provided the following information concerning a capital budgeting
project:
After-tax discount rate
9
%
Tax rate
30
%
Expected life of the project
4
Investment required in equipment
$
200,000
Salvage value of equipment
$
0
Working capital requirement
$
20,000
Annual sales
$
540,000
Annual cash operating expenses
$
380,000
One-time renovation expense in year 3
$
80,000
The company uses straight-line depreciation on all equipment.
The total cash flow net of income taxes in year 3 is:
A) $77,000
B) $104,000
C) $71,000
D) $80,000
36) Bratton Corporation has provided the following information concerning a capital budgeting
project:
After-tax discount rate
13
%
Tax rate
30
%
Expected life of the project
4
Investment required in equipment
$
160,000
Salvage value of equipment
$
0
Annual sales
$
390,000
Annual cash operating expenses
$
280,000
One-time renovation expense in year 3
$
60,000
The company uses straight-line depreciation on all equipment; the annual depreciation expense
will be $40,000. 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.
See separate Exhibit 13B-1 to determine the appropriate discount factor(s) using table.
The net present value of the project is closest to:
A) $104,686
B) $196,000
C) $154,000
D) $75,580