Your client, a publically-traded company, in 2019 acquires $2.5 million of fixed assets. All of these assets are 5 year class MACRS property. The first three years of MACRS depreciation are: First Year $625,000; Second Year 750,000; Third Year $450,000. For book purposes, the company uses a 10 year useful life, straight-line depreciation with no salvage value. Obviously, these assets will create a DTL. How should the DTL be presented for these assets at the end of year 2? Ignore partial year depreciation and assume a 21% tax rate.
a. $105, 000 Long-Term; $78,750 Short-Term
b. $78,750 Long-Term $105,000 Short-Term
c. $183,750 Long-Term
d. None of the above

"Consider two mutually exclusive projects that will be conducted for a total of 6 years. Project A lasts 3 years (so it will need to be repeated 1 time) and has the following cash flow: Year 0 -$18,000; Year 1 $20,000; Year 2 $16,000; Year 3 $18,000. Project B lasts 2 years (so it will need to be repeated 2 times) and has the following cash flow: Year 0 -$17,000; Year 1 $15,000; Year 2 $22,000. Assume both projects can be repeated with the identical cash flows. The interest rate is 16%. Provide the Net Present Worth for 6 YEARS of the project that you should select. If neither project should be selected, enter 0."

A machine can be purchased for $160,000 and used for five years, yielding the following net incomes. In projecting net incomes, straight-line depreciation is applied, using a five-year life and a zero salvage value.

Compute the machine’s payback period (ignore taxes). (Round your intermediate calculations to 3 decimal places and round payback period answer to 3 decimal places.)

Year       Net Income        Depreciation      Net Cash Flow   Cumulative Cash Flow   

0                                              (160,000)             $(160,000)          

1              $10,700                                                                

2              26,700                                  

3              57,000                                  

4              40,100                                  

5              106,800                                                

Payback period =                             

Clair Walsh wishes to purchase​ a(n) $630,000 house. She has accumulated a $110,000 down​ payment, but she wishes to borrow $520,000 on a 25​-year mortgage. For​ simplicity, assume annual mortgage payments occur at the end of each year and there are no loan fees.

Bensen Company started business by acquiring $26,300 cash from the issue of common stock on January 1, Year 1. The cash acquired was immediately used to purchase equipment for $26,300 that had a $3,900 salvage value and an expected useful life of four years. The equipment was used to produce the following revenue stream (assume that all revenue transactions are for cash). At the beginning of the fifth year, the equipment was sold for $4,330 cash. Bensen uses straight-line depreciation. Year 1 Year 2 Year 3 Year 4 Year 5 Revenue $ 7,640 $ 8,140 $ 8,340 $ 7,140 $ 0 Required Prepare income statements, statements of changes in stockholders’ equity, balance sheets, and statements of cash flows for each of the five years.

A present asset (defender) has a current market value of $85,000 (year 0 dollars). Estimated market values at the end of the next three years, expressed in year 0 dollars, are MV1= $73,000, MV2 = $60,000, MV3 = $40,000. The annual expenses (expressed in year 0 dollars) are $15,000 and are expected to increase at 4.5% per year. The before-tax nominal MARR is 15% per year. The best challenger has an economic life of five years and its associated EUAC is $39,100. Market values are expected to increase at the rate of inflation which is 3% per year. Based on this information and a before-tax analysis, what are the marginal costs of the defender each year and when should you plan to replace the defender with the challenger?

You are considering the purchase of a small office building. The NOI is expected to be the following:

Year 1 = $200,000

Year 2 = $210,000

Year 3 = $220,000

Year 4 = $230,000

Year 5 = $240,000

-The property will be sold at the end of year 5.

-You believe that the property will have a terminal cap rate of 7%.

-You plan to pay all cash for the property.

-You want to earn a 10% return on investment (IRR) compounded annually.

Question #1: What property value are you projecting at the end of year 5?

Question #2: What should you pay to earn your desired IRR?

(If you can please show how to set-up & solve in excel, that would be extremely helpful. Thank you.)

Your company has been doing well, reaching $1 million in earnings, and is considering launching a new product. Designing the new product has already cost $500,000. The company estimates that it will sell 800,000 units per year for $3.00 per unit and variable non-labor costs will be $1.00 per unit. Production will end after year 3. New equipment costing $1 million will be required (at year 0). The equipment will be depreciated using 100% bonus depreciation under the 2017 TCJA (i.e. the equipment can be completely depreciated in year 1). You think the equipment will be obsolete at the end of year 3 and plan to scrap it. Your current level of working capital is $300,000. The new product will require the working capital to increase to a level of $380,000 immediately, then to $400,000 in year 1, in year 2 the level will be $350,000, and finally in year 3 the level will return to $300,000. Your tax rate is 21%. The discount rate for this project is 10%. Do the capital budgeting analysis for this project and calculate its NPV.
Note: Assume that the equipment is put into use in year 1.

Answer:
Design already happened and is  (answer either “sunk” or “initial”) cost.
According to the bonus depreciation schedule, depreciation in year 1 will be $  . (Round to the nearest dollar.)
Depreciation in years 2 and 3 will be $  . (Round to the nearest dollar.)
Complete the capital budgeting analysis for this project below: (Round to the nearest dollar.)

(Download to Excel)

The NPV of the project is $  . (Round to the nearest dollar.)

Gustin Corp manufactures, sells, and leases medical equipment. Gustin Corp agrees to lease 3 CAT scanners, 2 MRIs, and 2 surgical Robots to Murray Hospital. The cost for Gustin to manufacture is 5,000,000. The lease term is eight years and requires eight lease payments of 1,800,000 each. Gustin expects the equipment to be worth 2,000,000 at the end of the lease but non of that amount is guaranteed by Murray hospital.

The lease begins on January 1, Year 1 and will last through December 31, Year 8. The first Lease payment of 1,800,000 is due on January 1, Year, 1 the next payment is due on December 31 year 1 and the remaining payments will continue on December 31 every year until the last one on December 31, Year 7. At the end of the lease term on December 31 Year 8 the medical equipment will be returned to Gustin Corp.

Both companies have December 31 fiscal year end. The implicit rate in the lease is 11 percent and Murray hospital is aware of that rate.

A.) Prepare journal entries for the first cash payment on January 1, year 1 for both the lessee and lessor.

B.) Provide any journal entries for the lessee and the lessor during year 1 including the second cash payment on December 31, year 1 for both the lessee and the lessor.

C .)Provide all journal entries for the lessee and the lessor during year 5.

D.) What amounts would the lessee and the lessor report on their income statement and on the balance sheet for year 5

E.) prepare all necessary entries on the books of the lessor and lessee at the termination of the lease on December 31, Year 8 assuming that the actual residual value of the equipment at the time is: A) 2,000,000 B) 3,000,000 C) 1,000,000

You are managing an all-equity firm that has 1 million shares outstanding in year 0. The firm has fixed assets with value A, which is constant over time. As the manager, you know the value of A but investors only learn it in year 3; as a result, the market price of shares in year 3 will reflect the value of A.In addition to the fixed assets firm has 1million pound of excess cash at year 0 deposited in a non interest bearing bank account and opportunity to invest 11.5 million pounds in year-2 in a project that

subsequently yields £11.9 million in year 3. Therefore, in order to invest in the project, the firm needs to raise additional funds of £10.5 million.

Your objective is to maximize the firm’s share price in year 3.

a. Assume that you can raise £10.5 million by issuing new shares at a price of £8.11 per share before making the potential investment in year 2. If the value of the firm’s fixed assets is A = £12 million, would you issue shares and invest in the project or not? What if A = £6 million?

b. Now assume that an investment banker informs you that you could use the £1 million of excess cash to repurchase shares at a price of £11.55 per share in year 1, and then raise the full £11.5 million needed to invest in the project by issuing new shares at a price of £8 per share in year 2. If the value of the firm’s existing assets A = £12 million, which of the following alternatives would you choose: (i) repurchase shares in year 1 and then do nothing in year 2, (ii) repurchase shares in year 1 and then issue new shares and invest in the project in year 2, (iii) do nothing in both years. How would your answers change if A = £6 million? What if A = £9 million?