142
128) Shanks Corporation is considering a capital budgeting project that involves investing
$600,000 in equipment that would have a useful life of 3 years and zero salvage value. The
company would also need to invest $20,000 immediately in working capital which would be
released for use elsewhere at the end of the project in 3 years. The net annual operating cash
inflow, which is the difference between the incremental sales revenue and incremental cash
operating expenses, would be $300,000 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 $200,000 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 15%.
Required:
Determine the net present value of the project. Show your work!
144
129) Falkowski 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
Working capital requirement
$
20,000
Annual sales
$
480,000
Annual cash operating expenses
$
320,000
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. The depreciation expense will be
$50,000 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 8%.
Required:
Determine the net present value of the project. Show your work!
146
130) Dunstan Corporation is considering a capital budgeting project that involves investing
$450,000 in equipment that would have a useful life of 3 years and zero salvage value. The
company would also need to invest $20,000 immediately in working capital which would be
released for use elsewhere at the end of the project in 3 years. The net annual operating cash
inflow, which is the difference between the incremental sales revenue and incremental cash
operating expenses, would be $220,000 per year. The company uses straight-line depreciation and
the depreciation expense on the equipment would be $150,000 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 11%.
Required:
Determine the net present value of the project. Show your work!
131) Nessen Corporation has provided the following information concerning a capital budgeting
project:
147
After-tax discount rate
6
%
Tax rate
30
%
Expected life of the project
4
Investment required in equipment
$
200,000
Salvage value of equipment
$
0
Annual sales
$
580,000
Annual cash operating expenses
$
400,000
One-time renovation expense in year 3
$
90,000
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!
149
132) Ariel Corporation has provided the following information concerning a capital budgeting
project:
Investment required in equipment
$
630,000
Working capital requirement
$
30,000
Net annual operating cash inflow
$
300,000
Tax rate
30
%
After-tax discount rate
14
%
The expected life of the project and the equipment is 3 years and the equipment has zero salvage
value. 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
and the depreciation expense on the equipment would be $210,000 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!
151
133) Skowyra Corporation has provided the following information concerning a capital budgeting
project:
Investment required in equipment
$
540,000
Working capital requirement
$
30,000
Net annual operating cash inflow
$
270,000
One-time renovation expense in year 2
$
70,000
The expected life of the project and the equipment is 3 years and the equipment has zero salvage
value. 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
and the depreciation expense on the equipment would be $180,000 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 7%. 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!
153
134) McCrohan 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. Data concerning
that project appear below:
Annual incremental sales
$
410,000
Annual incremental cash operating expenses
$
330,000
An investment of $30,000 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 10%.
Required:
Determine the net present value of the project. Show your work!
155
135) Galati 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
Working capital requirement
$
30,000
Annual sales
$
200,000
Annual cash operating expenses
$
150,000
One-time renovation expense in year 3
$
10,000
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. The depreciation expense will be
$20,000 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 8%.
Required:
Determine the net present value of the project. Show your work!
157
136) Patenaude Corporation has provided the following information concerning a capital
budgeting project:
Investment required in equipment
$
690,000
Working capital requirement
$
20,000
Net annual operating cash inflow
$
340,000
One-time renovation expense in year 2
$
80,000
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 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
and the depreciation expense on the equipment would be $230,000 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!
137) Cirillo Corporation is considering a capital budgeting project that involves investing
$660,000 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 $350,000 per year. The company uses straight-line
depreciation and the depreciation expense on the equipment would be $220,000 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 6%.
Required:
Determine the net present value of the project. Show your work!
160
138) Bellows Corporation is considering a capital budgeting project that would require investing
$80,000 in equipment with a 4 year useful life and zero salvage value. Data concerning that project
appear below:
Annual incremental sales
$
170,000
Annual incremental cash operating expenses
$
120,000
One-time renovation expense in year 3
$
20,000
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. The company’s tax rate is 30% and the after-tax discount rate is 11%.
Required:
Determine the net present value of the project. Show your work!