Question
In: Finance
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 NPV for each company. (Negative answers should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)
| NPV | |
| Company A | $ |
| Company B | $ |
b-1. What is the IRR of the after-tax cash flows for each company? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)
| IRR | |
| Company A | $ % |
| Company B | $ % |
b-2. What does comparison of the IRRs suggest is the effective corporate tax rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)
Effective tax rate %
Solutions
jeff jeffy answered 1 month agoRelated Solutions
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 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.
(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 $27,800 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 round...
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 $26,200 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 30% and can depreciate the
investment for tax purposes using the five-year MACRS tax
depreciation schedule. Suppose the opportunity cost of capital is
8%. 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 $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...
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 $27,700 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 $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...
An investment project requires an initial outlay of $100,000, and is expected to generate annual cash...
An investment project requires an initial outlay of $100,000,
and is expected to generate annual cash inflows of $28,000 for the
next 5 years. The cost of capital is 12 percent. Determine the
internal rate of return for the project (to the nearest tenth of
one percent).
a.
12.0%
b.
12.6%
c.
3.6%
d.
12.4%
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...
Consider a project that requires an initial investment of $103,000 and will produce a single cash...
Consider a project that requires an initial investment of
$103,000 and will produce a single cash flow of $148,000 in 4
years.
What is the NVP of this project if the 4 year interest rate is
5.2% (EAR) ?
What is the NPV of this project if the 4 year interest rate is
9.8% (EAR)?
What is the highest 4 year interest rate such that this project
is still profitable?
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