21. When computing the net present value of the project, what are the annual after-tax cash
expenses?
22. By how much does the depreciation deduction reduce taxes each year in which the
depreciation deduction is taken?
23. When computing the net present value of the project, what is the after-tax cash flow from
the salvage value in the final year?
24. The net present value of the project is closest to:
25. When computing the net present value of the project, what is the after-tax cash flow from
the salvage value in the final year?
26. The net present value of the project is closest to:
Michelotti Inc. is considering an investment project that would require an initial investment
of $140,000 and that would last for 7 years. The annual cash receipts from the project would be
$105,000 and the annual cash expenses would be $47,000. The equipment used in the project
could be sold at the end of the project for a salvage value of $7,000. The company’s tax rate is
30%. For tax purposes, the entire initial investment will be depreciated over 5 years without any
reduction for salvage value. The company uses a discount rate of 19%.
27. When computing the net present value of the project, what are the annual after-tax cash
receipts?
28. The net present value of the project is closest to:
Morgado Inc. has provided the following data to be used in evaluating a proposed
investment project:
The company’s tax rate is 30%. For tax purposes, the entire initial investment will be depreciated
over 5 years without any reduction for salvage value. The company uses a discount rate of 19%.
29. When computing the net present value of the project, what are the annual after-tax cash
receipts?
30. When computing the net present value of the project, what are the annual after-tax cash
expenses?
31. By how much does the depreciation deduction reduce taxes each year in which the
depreciation deduction is taken?
32. When computing the net present value of the project, what is the after-tax cash flow from
the salvage value in the final year?
33. Sarafin Inc. is considering a project that would require an initial investment of $693,000
and would have a useful life of 7 years. The annual cash receipts would be $416,000 and the
annual cash expenses would be $208,000. The salvage value of the assets used in the project
would be $35,000. The company’s tax rate is 30%. For tax purposes, the entire initial investment
without any reduction for salvage value will be depreciated over 5 years. The company uses a
discount rate of 15%.
Required:
Compute the net present value of the project.
8C–30
34. Management is considering purchasing an asset for $30,000 that would have a useful life
of 5 years and no salvage value. For tax purposes, the entire original cost of the asset would be
depreciated over 5 years using the straight-line method. The asset would generate annual net
cash inflows of $21,000 throughout its useful life. The project would require additional working
capital of $4,000, which would be released at the end of the project. The company’s tax rate is
40% and its discount rate is 8%.
Required:
What is the net present value of the asset?
35. A company is considering purchasing an asset for $50,000 that would have a useful life of
8 years and would have a salvage value of $5,000. For tax purposes, the entire original cost of the
asset would be depreciated over 8 years using the straight-line method and the salvage value
would be ignored. The asset would generate annual net cash inflows of $26,000 throughout its
useful life. The project would require additional working capital of $8,000, which would be
released at the end of the project. The company’s tax rate is 40% and its discount rate is 13%.
Required:
What is the net present value of the asset?
36. Eisenbeis Inc. has provided the following data concerning a proposed investment project:
The company’s tax rate is 30%. For tax purposes, the entire initial investment without any
reduction for salvage value will be depreciated over 7 years. The company uses a discount rate of
13%.
Required:
Compute the net present value of the project.