A) $96,000
B) $24,000
C) $120,000
D) $80,000
55) The net present value of the entire project is closest to:
See separate Exhibit 13B-1 to determine the appropriate discount factor(s) using table.
A) $224,000
B) $193,640
C) $101,648
D) $120,728
Boynes Corporation is considering a capital budgeting project that would require investing
$200,000 in equipment with an expected life of 4 years and zero salvage value. Annual
incremental sales would be $490,000 and annual incremental cash operating expenses would be
$330,000. The project would also require an immediate investment in working capital of $10,000
which would be released for use elsewhere at the end of the project. The project would also require
a one-time renovation cost of $70,000 in year 3. The company’s income tax rate is 30% and its
after-tax discount rate is 14%. The company uses straight-line depreciation. 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.
56) The income tax expense in year 2 is:
A) $33,000
B) $48,000
C) $21,000
D) $12,000
57) The income tax expense in year 3 is:
A) $12,000
B) $48,000
C) $33,000
D) $21,000
58) The total cash flow net of income taxes in year 2 is:
A) $78,000
B) $160,000
C) $110,000
D) $127,000
59) The total cash flow net of income taxes in year 3 is:
A) $78,000
B) $90,000
C) $57,000
D) $127,000
60) The net present value of the entire project is closest to:
See separate Exhibit 13B-1 to determine the appropriate discount factor(s) using table.
A) $259,000
B) $126,876
C) $214,750
D) $132,796
Hinger Corporation is considering a capital budgeting project that would require investing
$120,000 in equipment with an expected life of 4 years and zero salvage value. Annual
incremental sales would be $350,000 and annual incremental cash operating expenses would be
$250,000. The project would also require an immediate investment in working capital of $10,000
which would be released for use elsewhere at the end of the project. The project would also require
a one-time renovation cost of $40,000 in year 3. The company’s income tax rate is 30% and its
after-tax discount rate is 11%. The company uses straight-line depreciation. 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.
61) The total cash flow net of income taxes in year 2 is:
A) $49,000
B) $100,000
C) $79,000
D) $70,000
69
62) Hinger Corporation is considering a capital budgeting project that would require investing
$120,000 in equipment with an expected life of 4 years and zero salvage value. Annual
incremental sales would be $350,000 and annual incremental cash operating expenses would be
$250,000. The project would also require an immediate investment in working capital of $10,000
which would be released for use elsewhere at the end of the project. The project would also require
a one-time renovation cost of $40,000 in year 3. The company’s income tax rate is 35% and its
after-tax discount rate is 11%. The company uses straight-line depreciation. 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 total cash flow net of income taxes in year 3 is:
A) $79,000
B) $42,000
C) $51,000
D) $30,000
63) The net present value of the entire project is closest to:
See separate Exhibit 13B-1 to determine the appropriate discount factor(s) using table.
A) $101,259
B) $108,547
C) $115,137
D) $240,000
Reye Corporation has provided the following information concerning a capital budgeting project:
Investment required in equipment
$
200,000
Expected life of the project
4
Salvage value of equipment
$
0
Annual sales
$
430,000
Annual cash operating expenses
$
320,000
Working capital requirement
$
20,000
The company’s income tax rate is 30% and its after-tax discount rate is 9%. 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.
64) The income tax expense in year 2 is:
A) $129,000
B) $15,000
C) $18,000
D) $96,000
Calculate the annual tax expense:
Sales
$
Cash operating expenses
$
)
Depreciation expense
$
)
Incremental net income
$
Tax rate
%
Income tax expense
$
65) The total cash flow net of income taxes in year 2 is:
A) $60,000
B) $110,000
C) $18,000
D) $92,000
66) The net present value of the entire project is closest to:
See separate Exhibit 13B-1 to determine the appropriate discount factor(s) using table.
A) $92,148
B) $150,450
C) $77,988
D) $168,000
Vanzant Corporation has provided the following information concerning a capital budgeting
project:
After-tax discount rate
6
%
Tax rate
30
%
Expected life of the project
4
Investment required in equipment
$
240,000
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
$
70,000
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.
67) The income tax expense in year 2 is:
A) $48,000
B) $9,000
C) $21,000
D) $30,000
Calculate the annual tax expense:
Sales
$
Cash operating expenses
$
)
Depreciation expense
$
)
Incremental net income
$
Tax rate
%
Income tax expense
$
68) The income tax expense in year 3 is:
A) $30,000
B) $21,000
C) $9,000
D) $48,000
69) The net present value of the entire project is closest to:
A) $149,290
B) $251,440
C) $165,130
D) $231,000
Bourland Corporation is considering a capital budgeting project that would require investing
$80,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental
sales would be $250,000 and annual incremental cash operating expenses would be $180,000. The
project would also require a one-time renovation cost of $40,000 in year 3. The company’s income
tax rate is 30% and its after-tax discount rate is 8%. The company uses straight-line depreciation.
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.
70) The income tax expense in year 2 is:
A) $3,000
B) $15,000
C) $21,000
D) $12,000
71) The income tax expense in year 3 is:
A) $3,000
B) $21,000
C) $12,000
D) $15,000
72) The net present value of the entire project is closest to:
See separate Exhibit 13B-1, to determine the appropriate discount factor(s) using the tables
provided.
A) $79,928
B) $159,928
C) $120,080
D) $112,000
Decelle Corporation is considering a capital budgeting project that would require investing
$80,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental
sales would be $260,000 and annual incremental cash operating expenses would be $210,000. The
project would also require an immediate investment in working capital of $20,000 which would be
released for use elsewhere at the end of the project. The project would also require a one-time
renovation cost of $20,000 in year 3. The company’s income tax rate is 30% and its after-tax
discount rate is 12%. The company uses straight-line depreciation. 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.
73) The income tax expense in year 2 is:
A) $9,000
B) $15,000
C) $6,000
D) $3,000