121
113) The total cash flow net of income taxes in year 3 is:
A) $35,000
B) $50,000
C) $47,000
D) $61,000
114) 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) $28,073
B) $70,000
C) $5,183
D) $54,000
124
Layer Corporation has provided the following information concerning a capital budgeting project:
Investment required in equipment
$
160,000
Expected life of the project
4
Salvage value of equipment
$
0
Annual sales
$
360,000
Annual cash operating expenses
$
290,000
Working capital requirement
$
20,000
One-time renovation expense in year 3
$
20,000
The company’s income tax rate is 30% and its after-tax discount rate is 8%. 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.
115) The income tax expense in year 2 is:
A) $3,000
B) $9,000
C) $21,000
D) $6,000
Calculate the annual tax expense:
Sales
$
Cash operating expenses
$
)
Depreciation expense
$
)
Incremental net income
$
Tax rate
%
Income tax expense
$
116) The income tax expense in year 3 is:
A) $21,000
B) $9,000
C) $6,000
D) $3,000
117) The total cash flow net of income taxes in year 2 is:
A) $70,000
B) $47,000
C) $30,000
D) $61,000
118) The total cash flow net of income taxes in year 3 is:
A) $41,000
B) $61,000
C) $47,000
D) $50,000
119) 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) $50,660
B) $25,616
C) $10,916
D) $70,000
Donayre Corporation is considering a capital budgeting project that would require investing
$160,000 in equipment with an expected life of 4 years and zero salvage value. Annual
incremental sales would be $450,000 and annual incremental cash operating expenses would be
$320,000. The project would also require a one-time renovation cost of $70,000 in year 3. The
company’s income tax rate is 35% and its after-tax discount rate is 7%. 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.
120) The total cash flow net of income taxes in year 2 is:
A) $91,000
B) $130,000
C) $103,000
D) $63,000
121) The total cash flow net of income taxes in year 3 is:
A) $54,000
B) $42,000
C) $14,000
D) $103,000
122) 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) $308,877
B) $148,877
C) $203,000
D) $188,861
132
123) Petro Corporation has provided the following information concerning a capital budgeting
project:
After-tax discount rate
11
%
Tax rate
30
%
Expected life of the project
4
Investment required in equipment
$
80,000
Salvage value of equipment
$
0
Working capital requirement
$
20,000
Annual sales
$
180,000
Annual cash operating expenses
$
140,000
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!
134
124) Morefield Corporation has provided the following information concerning a capital
budgeting project:
Investment required in equipment
$
40,000
Expected life of the project
4
Salvage value of equipment
$
0
Annual sales
$
170,000
Annual cash operating expenses
$
130,000
The company uses straight-line depreciation. The depreciation expense will be $10,000 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 12%.
Required:
Determine the net present value of the project. Show your work!
136
125) Duma Corporation has provided the following information concerning a capital budgeting
project:
After-tax discount rate
11
%
Tax rate
30
%
Expected life of the project
4
Investment required in equipment
$
160,000
Salvage value of equipment
$
0
Annual sales
$
490,000
Annual cash operating expenses
$
350,000
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.
Required:
Determine the net present value of the project. Show your work!
138
126) Rapozo Corporation has provided the following information concerning a capital budgeting
project:
Investment required in equipment
$
480,000
Net annual operating cash inflow
$
230,000
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 $160,000 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!
140
127) Condo Corporation has provided the following information concerning a capital budgeting
project:
Investment required in equipment
$
480,000
Net annual operating cash inflow
$
230,000
Tax rate
30
%
After-tax discount rate
12
%
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 $160,000 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!