Question
In: Finance
A corporation is evaluating the relevant cash flows for a capital budgeting decision and must estimate...
A corporation is evaluating the relevant cash flows for a
capital budgeting decision and must estimate the terminal cash
flow. The proposed machine will be disposed of at the end of its
usable life of five years at an estimated sale price of $15,000.
The machine has an original purchase price of $80,000, installation
cost of $20,000, and will be depreciated under the five-year MACRS.
Net working capital is expected to decline by $5,000. The firm has
a 40 percent tax rate on ordinary income and long-term capital
gain. The terminal cash flow is ________.
A) $24,000
B) $16,000
C) $14,000
The answer is B, please write down the explanation!
Solutions
Expert Solution
Cost of asset (80000+20000)
$100,000.00
less : 5 year Depreciation provided =
-$95,000.00
(20%+32%+19%+12%+12%)*100000
Book value
$5,000.00
Sale value
$15,000.00
Sale value is more than book value. So Capital gain = Sale Value -
book value=
$10,000.00
tax on capital gain (@ 40% of 9040)=
$4,000.00
Calculation of Terminal cash inflows
Sale proceeds from equipment
$15,000.00
less: Tax on capital gain of sale of asset
-$4,000.00
Decline of working capital
$5,000.00
______________________________________________
Terminal cash inflow is $16,000.00
_____________________________________________
jeff jeffy answered 8 months agoRelated Solutions
1. A corporation is evaluating the relevant cash flows for a capital budgeting project involving expansion...
1.
A corporation is evaluating the relevant cash flows for a
capital budgeting project involving expansion of the firm’s
activities and must estimate the terminal cash flow for the
project. The project will involve purchasing a machine for
$120,000. The machine has a usable life of 6 years but would be
disposed of after 5 years at an estimated sale price of $10,000.
The machine will be depreciated under the prime cost
(straight-line) method supposing a 6-year life. Net working...
How do we determine if cash flows are relevant to the capital budgeting decision? What are...
How do we determine if cash flows are relevant to the capital
budgeting decision?
What are sensitivity analysis, scenario analysis, break-even
analysis, and simulation? Why are these analyses important, and how
should they be used?
1. How do we determine if cash flows are relevant to the capital budgeting decision? 2....
1. How do we determine if cash flows are relevant to the capital
budgeting decision?
2. What are the different methods for computing operating cash
flow and when are they important?
3. How should cash flow and discount rates be matched when
inflation is present?
4. What is the equivalent annual cost and when should it be
used?
Cuda Marine Engines, Inc. must develop the relevant cash flows for a replacement capital budgeting project....
Cuda Marine Engines, Inc. must develop the relevant cash flows
for a replacement capital budgeting project. The proposed asset
costs $50,000 and has installation costs of $3,000. The asset will
be depreciated using the MACRS five year recovery schedule. The
existing equipment was purchased three years ago which orginally
cost $25,000, has been depreciated using MACRS 5-year period. The
new equipment is expected to result in an incremental increases in
revenue of $10,000 a year for five years and a...
10a- Your firm is evaluating a capital budgeting project. The estimated cash flows appear below. The...
10a- Your firm is evaluating a capital budgeting project. The
estimated cash flows appear below. The board of directors wants to
know the expected impact on shareholder wealth. Knowing that the
estimated impact on shareholder wealth equates to net present value
(NPV), you use your handy calculator to compute the value. What is
the project's NPV? Assume that the cash flows occur at the end of
each year. The discount rate (i.e., required rate of return, hurdle
rate) is 14.4%....
6a- Your firm is evaluating a capital budgeting project. The estimated cash flows appear below. The...
6a- Your firm is evaluating a capital budgeting project. The
estimated cash flows appear below. The board of directors wants to
know the expected impact on shareholder wealth. Knowing that the
estimated impact on shareholder wealth equates to net present value
(NPV), you use your handy calculator to compute the value. What is
the project's NPV? Assume that the cash flows occur at the end of
each year. The discount rate (i.e., required rate of return, hurdle
rate) is 15.2%....
1A) Your firm is evaluating a capital budgeting project. The estimated cash flows appear below. The...
1A) Your firm is evaluating a capital budgeting project. The
estimated cash flows appear below. The board of directors wants to
know the expected impact on shareholder wealth. Knowing that the
estimated impact on shareholder wealth equates to net present value
(NPV), you use your handy calculator to compute the value. What is
the project's NPV? Assume that the cash flows occur at the end of
each year. The discount rate (i.e., required rate of return, hurdle
rate) is 14.5%....
Evaluating a capital budgeting project that costs $40,000 that is expected to generate after-tax cash flows...
Evaluating a capital budgeting project that costs $40,000 that
is expected to generate after-tax cash flows of $15,000 per year
for three years. If the required rate of return is 10 percent
calculate the project’s (a) NPV and (b) IRR. Should the project be
purchased?
This is for a review
Please show steps and rationale for project purchase.
A company must develop the relevant cash flows for a replacement capital investment proposal. The proposed...
A company must develop the relevant cash flows for a replacement
capital investment proposal. The proposed asset costs $50,000 and
has installation costs of $3,000. The asset will be depreciated
using a five-year recovery schedule. The existing equipment, which
originally cost $25,000 and will be sold for $10,000, has been
depreciated using an MACRS five-year recovery schedule and three
years of depreciation has already been taken. The new equipment is
expected to result in incremental before-tax net profits of $15,000...
A company must develop the relevant cash flows for a replacement capital investment proposal. The proposed...
A company must develop the relevant cash flows for a replacement
capital investment proposal. The proposed asset costs $50,000 and
has installation costs of $3,000. The asset will be depreciated
using a five-year recovery schedule. The existing equipment, which
originally cost $25,000 and will be sold for $10,000, has been
depreciated using an MACRS five-year recovery schedule and three
years of depreciation has already been taken. The new equipment is
expected to result in incremental before-tax net profits of $15,000...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Mobile and wireless devices are being increasingly used in the Business Administration and Management Industry. write...
- What are the options that might be considered in relation to introducing flexible work practices? What...
- Question 2 : Aggregate Scores: Write a program that opens 2 files, quiz.txt, and hw.txt. The...
- Define the term symbiosis specifically as it applies in a biological context. Compare and contrast parasitism,...
- A research team conducted a study showing that approximately 20% of all businessmen who wear ties...
- Research the internet for companies that have executed data science projects. Pick one company and describe...
- Explain two theories or frameworks for understanding how Western Europe emerged out of 1,000 years of...
ADVERTISEMENT