Question
In: Finance
A project requires an initial investment of $200,000 in a machine and is expected to produce...
A project requires an initial investment of $200,000 in a machine and is expected to produce cost savings of $120,000 each year for two years. The tax rate is 30%. The machine will be depreciated using the MACRS 3-year schedule (first year 33%, second year 45%, third year 15% and fourth year 7%). The machine can be sold for $50,000 after two years. The project’s required return is 11%.
(1) What is the initial cash flow at t=0?
(2) What are the operating cash flows in year 1 and 2?
(3) What is the year 2 terminal cash flow?
(4) What is the NPV of the project?
Solutions
jeff jeffy answered 2 years agoRelated Solutions
A project requires an initial investment of $200,000 and expects to produce a cash flow before...
A project requires an initial investment of $200,000 and expects
to produce a cash flow before taxes of $120,000 per year for two
years (i.e., cash flows will occur at t = 1 and t = 2). The
corporate tax rate is 21 percent. The assets will depreciate using
the MACRS 3-year schedule: (t = 1, 33%); (t = 2: 45%); (t = 3:
15%); (t = 4: 7%). The company's tax situation is such that it can
use all...
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and is unlikely to pay taxes in the foreseeable future. Company B
pays corporate taxes at a rate of 21% and can claim 100% bonus
depreciation on the investment. Suppose the opportunity cost of
capital is 10%. Ignore inflation.
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(Do not...
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for five years. Company A has substantial accumulated tax losses
and is unlikely to pay taxes in the foreseeable future. Company B
pays corporate taxes at a rate of 30% and can depreciate the
investment for tax purposes using the five-year MACRS tax
depreciation schedule. Suppose the opportunity cost of capital is
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a. Calculate project...
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expected to produce a cash inflow before tax of $26,600 per year
for five years. Company A has substantial accumulated tax losses
and is unlikely to pay taxes in the foreseeable future. Company B
pays corporate taxes at a rate of 21% and can claim 100% bonus
depreciation on the investment. Suppose the opportunity cost of
capital is 9%. Ignore inflation. Calculate the NPV for each
company. What is the...
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expected to produce a cash inflow before tax of $27,700 per year
for five years. Company A has substantial accumulated tax losses
and is unlikely to pay taxes in the foreseeable future. Company B
pays corporate taxes at a rate of 21% and can claim 100% bonus
depreciation on the investment. Suppose the opportunity cost of
capital is 11%. Ignore inflation.
a. Calculate project NPV for each company. (Do not...
A project requires an initial investment of $100,000 and is expected to produce a cash inflow...
A project requires an initial investment of $100,000 and is
expected to produce a cash inflow before tax of $27,300 per year
for five years. Company A has substantial accumulated tax losses
and is unlikely to pay taxes in the foreseeable future. Company B
pays corporate taxes at a rate of 40% and can depreciate the
investment for tax purposes using the five-year MACRS tax
depreciation schedule. Suppose the opportunity cost of capital is
10%. Ignore inflation.
a. Calculate project...
A project requires an initial investment of $100,000 and is expected to produce a cash inflow...
A project requires an initial investment of $100,000 and is
expected to produce a cash inflow before tax of $27,300 per year
for five years. Company A has substantial accumulated tax losses
and is unlikely to pay taxes in the foreseeable future. Company B
pays corporate taxes at a rate of 40% and can depreciate the
investment for tax purposes using the five-year MACRS tax
depreciation schedule. Suppose the opportunity cost of capital is
10%. Ignore inflation.
a. Calculate project...
A project requires an initial investment of $100,000 and is expected to produce a cash inflow...
A project requires an initial investment of $100,000 and is
expected to produce a cash inflow before tax of $28,000 per year
for five years. Company A has substantial accumulated tax losses
and is unlikely to pay taxes in the foreseeable future. Company B
pays corporate taxes at a rate of 21% and can claim 100% bonus
depreciation on the investment. Suppose the opportunity cost of
capital is 11%. Ignore inflation & do not rely
on MACRS.
a. Calculate project...
A project requires an initial investment of $100,000 and is expected to produce a cash inflow...
A project requires an initial investment of $100,000 and is
expected to produce a cash inflow before tax of $27,200 per year
for five years. Company A has substantial accumulated tax losses
and is unlikely to pay taxes in the foreseeable future. Company B
pays corporate taxes at a rate of 21% and can claim 100% bonus
depreciation on the investment. Suppose the opportunity cost of
capital is 10%. Ignore inflation. a. Calculate project NPV for each
company. b. What...
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