Question
In: Finance
The U.S. government has decided to decrease the corporate tax rate from 35% to 20% (for...
The U.S. government has decided to decrease the corporate tax rate from 35% to 20% (for the record, I originally wrote this problem long before this actually happened). You have been tasked with re-estimating the remaining PV of a project’s cash flows. The project will operate for the next 4 years before shutting down. It will produce yearly revenue of $40k with yearly operating costs of $20k. The project utilizes some heavy machinery which has a current book value of $80k and is being depreciated on a straight-line basis by $15k per year for the remainder of the project. (IMPORTANT: This does not mean that you purchase the machine today for $80k. You bought the machine in the past when you started the project). The machinery will have a resell value of $30k at the completion of the project. The firm’s discount rate is 10%.
1. Show how much each of the project’s OCFs will change on a timeline once the tax rate is decreased.
Solutions
Expert Solution
income after tax = income before tax - operating costs - depreciation
OCF = income after tax + depreciation
Resell value of machinery is a terminal cash flow, and not an operating cash flow
jeff jeffy answered 3 months agoRelated Solutions
The U.S. government has decided to decrease the corporate tax rate from 35% to 20% (for...
The U.S. government has decided to decrease the corporate tax
rate from 35% to 20% (for the record, I originally wrote this
problem long before this actually happened). You have been tasked
with re-estimating the remaining PV of a project’s cash flows. The
project will operate for the next 4 years before shutting down. It
will produce yearly revenue of $40k with yearly operating costs of
$20k. The project utilizes some heavy machinery which has a current
book value of...
The U.S. government has decided to decrease the corporate tax rate from 35% to 20% (for...
The U.S. government has decided to decrease the corporate tax
rate from 35% to 20% (for the record, I originally wrote this
problem long before this actually happened). You have been tasked
with re-estimating the remaining PV of a project’s cash flows. The
project will operate for the next 4 years before shutting down. It
will produce yearly revenue of $40k with yearly operating costs of
$20k. The project utilizes some heavy machinery which has a current
book value of...
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