A firm is planning to start a new project. The firm spent $45,000 on a market study and $30,000 on consulting three months ago. If the firm starts the project, it will spend $600,000 for new machinery, $50,000 for installation, and $20,000 for shipping. The machine will be depreciated via the 5-year MACRS depreciation method (20.00%, 32.00%, 17.20%, 11.50%, 11.50%, and 5.8%, respectively, from Year 1 to Year 6). The expected sales increase from this new project is $450,000 a year, and the expected incremental expenses are $180,000 a year. In order to start this new project, the company has to invest $100,000 in working capital. The marginal tax rate is 34%. What is the incremental cash flow of this project in Year 2?

A)$220,013

B)$217,382

C)$102,142

D)$224,107

You are planning to save for retirement over the next 40 years. To do this, you plan to invest $5,000 a year in a stock account at the beginning of each year. In 10 years, you plan to diversify your portfolio by investing $3,000 a year in a bond account. The return of the stock account is expected to be 8 percent, and the bond account will pay 4 percent. When you retire, you will combine your funds into an account with a 7 percent return.

1. Estimate the value of your portfolio at the end of your saving period (in 40 years).  
2. How much can you withdraw each year from your account, assuming a 30-year withdrawal period?  

With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people’s homes.

They projected unit sales of these lamps to be 14,000 for each of the next five years. Production of these lamps will require $35,000 in net working capital invested immediately. The working capital will be fully recovered at the end of year 5. Fixed costs are $95,000 per year, variable production costs are $30 per unit, and the units are priced at $65 each.

a. The equipment needed to begin production will cost $500,000. The equipment will be depreciated using the straight-line method over a five-year life and is expected to have a salvage value of $80,000. The effective tax rate is 21 percent, and the required rate of return is 10 percent. What is the Net Present Value of this project?

b. After you complete this task, the two entrepreneurs want you to tell them what the impact on the NPV would be if the Production cost per unit increased to $45.  

Gruber Corp. pays a $9 dividend on its stock. The company will maintain this dividend for the next 3 years. In year 4, the dividend will increase to $10 and then grow at a constant 5 percent rate annually into perpetuity. If the required return on this stock is 10 percent, what is the current share price?

28) The additional funds needed by the firm can be calculated by assuming which of the following?

A) The firm's additional sales will grow proportionately as assets are purchased.
B) The firm's additional capital needed will grow proportionately with projected changes in sales.
C) The firm's balance sheet will grow proportionately with projected changes in sales.
D) The firm's additional sales will grow proportionately as capital is brought on to the balance sheet.

A.

Wissler, Inc. owes $273,000 to the bank for some improvements made to its office building. The loan is for 60 months and the monthly payment is $5,945.79 What is the interest rate on the loan?

B.

A proposed project to build handicap ramps for side-load vans requires an investment of $1,500,000, to be depreciated straight-line over a five-year life to zero. Opportunity cost is 16%. Each electric ramp will sell for $22,000, with variable costs of $14,000. Fixed cost are $300,000 per year. Sales are anticipated at 500 units for the five years, or 100 per year. Ignore taxes.

The total contribution margin in dollars per year is:

A. $500,000  

B. $300,000

C. $1,100,000

D. $800,000

The NPV is ________

I like to see the work, but the answers are $800,000 and $137,147.83 respectively.

Shadow Corp. has no debt but can borrow at 6.2 percent. The firm’s WACC is currently 8.5 percent and the tax rate is 25 percent.

Describe the relationship between firm's target capital structure and WACC.

1. The management of Faulu Limited is contemplating to invest in 8 projects. The capital expenditure during the year has been rationed to sh.500,000 and the projects have equal risk and should be discounted at the firm’s cost of capital of 10%

Required:

Determine the optimal investment sets.                    

Corporate Tax Return Project

Complete Form 1120 pages 1 and 2, Schedule D, Form 8949 and complete Schedule M-1 on page 5 of a 2018 Form 1120 for the following taxpayer using the information that follows:

• For purposes of this project only, do not attach other forms as required by certain lines of Form 1120.

Taxpayer Information:

Champion, Inc. is an accrual-basis, calendar-year corporation that operates five local “sports merchandise-stores”.  

Champion was incorporated on February 28th, 2017

Champion’s main office is located at 2346 Lake Shore Drive, Chicago, IL 60606

Champion’s employer identification number is 31-0923874.

Champion has total assets as of December 31, 2018 of $3,540,000

• Champion’s receipts for book purposes are as follows:
  • Champion’s gross receipts for the year totaled $1,700,000, which included returns and allowances of $123,000. Total Gross Receipts totaled $1,577,000.
  • Champion received $16,200 of interest income during the year, with $5,120 from City of DeKalb bonds and the balance from BMO Harris certificates of deposit.
  • Champion received dividend income of $4,000 from Disney Corporation.  Champion owns less than 5% of Disney stock.
  • In December 2018, Champion received $13,500 from a company that will lease excess space in Champion’s largest store from January 1 through October 31, 2019.
• Champion’s expenses for book purposes are as follows:
  • Cost of Goods Sold                                                                     $710,000
  • Salaries (including Officers’ Compensation of $123,000)                     230,000
  • Federal income tax                                                                         22,375
  • Depreciation                                                                                180,000
  • State & Local Taxes                                                                        92,300
  • Interest Expense                                                                              3,800
  • Repairs                                                                                         11,500
  • Rent                                                                                             36,750
  • Advertising                                                                                   20,000
  • Contribution to Gov. Rauner’s re-election campaign                               8,750
  • Property/Casualty Insurance Premiums                                               14,000
  • Business Meals                                                                                6,250
  • Business Entertainment                                                                     3,500
  • Hotel and airfare for business                                                             3,250
  • Premiums paid to key employee life insurance policy                        8,950
  • Charitable contributions paid                                                           78,750
• Champion’s total cost recovery for tax purposes was $132,500.
• Champion has a net capital loss carryforward from 2017 of $8,000
• Champion sold IBM stock on 7/4/18 for $4,100.  The shares had been purchased on 12/13/17 for $1,500.
• For its first tax year, Champion generated a $21,000 net operating loss.
• Champion made the following estimated income tax payments to the IRS for 2018:
  • Overpayment in 2017, credited to 2018                                         $1,550
  • 2^ndquarter, 3^rdquarter, 4^thquarter                                         $2,700 each

• Champion does not qualify for any other tax credits in 2018.
• Any overpayment of 2018 tax should be credited to its 2019 estimated taxes.

Woidtke Manufacturing's stock currently sells for $26 a share. The stock just paid a dividend of $2.75 a share (i.e., D0 = $2.75), and the dividend is expected to grow forever at a constant rate of 9% a year. What stock price is expected 1 year from now? Round your answer to the nearest cent. What is the estimated required rate of return on Woidtke's stock? Do not round intermediate calculations. Round the answer to three decimal places. (Assume the market is in equilibrium with the required return equal to the expected return.)

5) Your Company is considering a new project that will require $960,000 of new equipment at the start of the project. The equipment will have a depreciable life of 8 years and will be depreciated to a book value of $372,000 using straight-line depreciation. The cost of capital is 11%, and the firm's tax rate is 34%. Estimate the present value of the tax benefits from depreciation (closest to).

A) $48,510
B) $24,990
C) $128,602
D) $73,500

6) Your firm needs a machine which costs $200,000, and requires $35,000 in maintenance for each year of its 5 year life. After 3 years, this machine will be replaced. The machine falls into the MACRS 5-year class life category. Assume a tax rate of 30% and a discount rate of 14%. If this machine can be sold for $20,000 at the end of year 5, what is the after tax salvage value?

A) $14,000.00
B) $17,456.00
C) $8,064
D) $8,480.00

14) Scribble, Inc. has sales of $91,000 and cost of goods sold of $75,000. The firm had a beginning inventory of $21,000 and an ending inventory of $23,000. What is the length of the days' sales in inventory? (Round your answer to 2 decimal places.)

A) 84.23 days
B) 102.20 days
C) 111.93 days
D) 92.25 days