Question

In: Finance

What are the relevant cash flows associated with depreciating a $200,000 capital expenditure over four years...

What are the relevant cash flows associated with depreciating a $200,000 capital expenditure over four years if the tax rate is 25% and the opportunity cost of capital 7%

What is the present value of all incremental cash flows associated with a capital expenditure of $100,000 today that can be depreciated in a straight line over 4 years if the tax rate is 25% and the opportunity cost of capital 10%?

Solutions

Expert Solution

Relevant Cash flows   in year 0    (200,000.00)
Relevant Cash flows   in year 1-4 = (200,000/4)*25%         12,500.00
Statement showing Cash flows
Particulars Time PVf 10% Amount PV
Cash flows                        -          1.0000          (100,000.00)          (100,000.00)
Cash flows                    1.00        0.9091                 6,250.00                 5,681.82
Cash flows                    2.00        0.8264                 6,250.00                 5,165.29
Cash flows                    3.00        0.7513                 6,250.00                 4,695.72
Cash flows                    4.00        0.6830                 6,250.00                 4,268.83
PV of Cash flows            (80,188.34)
Depreciation = (100,000 - 0)/4         25,000.00
Tax savings on depreciation = 25000 *25%           6,250.00

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

What are relevant cash flows? Why should we only include these cash flows in our capital...
What are relevant cash flows? Why should we only include these cash flows in our capital budgeting analysis? Please also give some examples.
Plane Industries is expected to generate the free cash flows over the next four years (listed...
Plane Industries is expected to generate the free cash flows over the next four years (listed below), after which they are expected to grow at a rate of 5% per year. Cash flows are in millions of dollars. If the weighted average cost of capital is 12% and Plane Industries has cash of $65 million, debt of $45 million, and 30 million shares outstanding, what is Plane company's expected current share price? Cash Flow by year year 1: $14 year...
Conundrum Mining is expected to generate the above free cash flows over the next four years,...
Conundrum Mining is expected to generate the above free cash flows over the next four years, after which they are expected to grow at a rate of 5% per year. If the weighted average cost of capital is 12% and Conundrum has cash of $80 million, debt of $60 million, and 30 million shares outstanding, what is Conundrum's expected current share price? Year 1 2 3 4 Free Cash Flow $12 million $18 million $22 million $26 million $16.16 $16.25...
a)            What are the cash flows associated with a bond?             What are the distinguishing features...
a)            What are the cash flows associated with a bond?             What are the distinguishing features of debt as compared to equity?             What is the indenture? What are protective covenants. Give some examples.            Define the following types of Bonds:                 –   Euro Bond                 –   Zero-Coupon Bond                 –   Samurai Bond                 –   Equipment Obligation Bond a)            Differentiate between term Loans and Bonds.
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...
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...
The cash flows for four projects are shown below, along with the cost of capital for...
The cash flows for four projects are shown below, along with the cost of capital for these projects. If these projects are mutually exclusive, which one should be taken? A. Year:                         0                1            2              3            4                  5 Cash flow:                     -$12,000    $4000    $4000      $4000    $4000          $4000 Cost of Capital: 5.0% B. Year:                              0                1            2              3            4                  5 Cash flow:                     -$15,000    $4000    $4000      $4000    $4000          $4000 Cost of Capital: 7.0% C. Year:                              0                1            2              3            4                  5 Cash flow:                     -$20,000    $6000    $6000      $6000    $6000          $6000 Cost of Capital: 8.2% D. Year:                              0               ...
) The cash flows for four projects are shown below, along with the cost of capital...
) The cash flows for four projects are shown below, along with the cost of capital for these projects. If these projects are mutually exclusive, which one should be taken? 28) A) Year: 0 1 2 3 4 5 Cash flow: -$20,000 $6000 $6000 $6000 $6000 $6000 Cost of Capital: 8.2% B) Year: 0 1 2 3 4 5 Cash flow: -$15,000 $4000 $4000 $4000 $4000 $4000 Cost of Capital: 7.0% C) Year: 0 1 2 3 4 5 Cash...
5. Assume a $200,000 investment and the following cash flows for two alternative capital projects: Year...
5. Assume a $200,000 investment and the following cash flows for two alternative capital projects: Year Project A Project B 1 $60,000 $40,000 2 90,000 70,000 3 50,000 80,000 4 40,000 20,000 a. Calculate the payback period for each project. b. Using the payback method, if the projects are mutually exclusive, which project would you select and why? c. If the year four cash flows were $100,000 for Project A and $500,000 for Project B, would your decision change under...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT