In: Accounting
ompany B considers investing in a machine that costs €120,000. The machine is expected to produce revenues of €100,000 per year. The cost of materials and labor needed to generate these revenues will total €25,000 per year and other cash expenses will be €25,000 per year, for the next five years. The machine will be depreciated on a straight-line basis over five years with a zero salvage value and is estimated to be sold for €20,000 Euros at the end of year 5. Assume that the corporate tax rate is 15% and the discount rate is 10%.
What are the net cash flows of the project for years 1 to 4?
Select one:
a. 35,590
b. 22,300
c. 40,540
d. 57,890
e. 46,100
Question 12
What is the net cash flow of the project for year 5?
Select one:
a. 39,300
b. 73,490
c. 51,450
d. 57,450
e. 63,100
Question 13
Question text
What is the net income for the fourth year of the project?
Select one:
a. 22,100
b. 63,100
c. 46,100
d. 17,000
e. 26,000
Question 14
What is the payback period of the project?
Select one:
a. Between year 4 and 5
b. Between year 2 and 3
c. Between year 3 and 4
d. Cannot be estimated
e. Between year 1 and 2
Revenues | € 100,000 |
Expenses | |
Material and Labor | € 25,000 |
Other Cash Expenses | € 25,000 |
Depreciation | € 24,000 |
Total Expenses | € 74,000 |
Income before taxes | € 26,000 |
Income tax expense | € 3,900 |
Net Income | € 22,100 |
Add Depreciation | € 24,000 |
Net Annual Cash Inflows | € 46,100 |
11.
Answer is e. 46,100
12.
Answer is e. 63,100 i.e. 46100 + 20000 x (1-0.15)
13.
Answer is a. 22,100
14.
Payback Period = 120000 / 46100 = 2.60 years
Answer is b. Between year 2 and 3