162
139) Debona 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. Annual incremental sales
would be $300,000 and annual incremental cash operating expenses would be $230,000. A
one-time expense of $30,000 for renovations would be required in year 3. 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!
140) Shilt Corporation is considering a capital budgeting project that would require investing
$40,000 in equipment with a 4 year useful life and zero salvage value. Data concerning that project
163
appear below:
Annual incremental sales
$
120,000
Annual incremental cash operating expenses
$
100,000
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 13%.
Required:
Determine the net present value of the project. Show your work!
165
141) Padmore Corporation has provided the following information concerning a capital budgeting
project:
$
720,000
$
40,000
$
340,000
30
%
6
%
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 $240,000 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!
167
142) Yau Corporation is considering a capital budgeting project that would require investing
$120,000 in equipment with a 4 year useful life and zero salvage value. Data concerning that
project appear below:
Annual incremental sales
$
360,000
Annual incremental cash operating expenses
$
250,000
One-time renovation expense in year 3
$
50,000
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 9%.
Required:
Determine the net present value of the project. Show your work!
169
143) Hawthorn Corporation has provided the following information concerning a capital
budgeting project:
Investment required in equipment
$
510,000
Net annual operating cash inflow
$
240,000
One-time renovation expense in year 2
$
60,000
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 $170,000 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!
144) Olis Corporation is considering a capital budgeting project that would require investing
$240,000 in equipment with a 4 year useful life and zero salvage value. Annual incremental sales
would be $690,000 and annual incremental cash operating expenses would be $480,000. 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 8%.
Required:
Determine the net present value of the project. Show your work!