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Exam 30: Income Taxes and the Present Value Method

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Question 71

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Newfield Corporation has provided the following information concerning a capital budgeting project: The company uses straight-line depreciation.The depreciation expense will be $30,000 per year.Assume cash flows occur at the end of the year except for the initial investments.The company takes income taxes into account in its capital budgeting.The income tax rate is 35% and the after-tax discount rate is 13%. Required: Determine the net present value of the project.Show your work!

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Question 72

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(Appendix 13C) Waltermire Corporation has provided the following information concerning a capital budgeting project: The working capital would be required immediately and would be released for use elsewhere at the end of the project. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. -The net present value of the entire project is closest to:

A) $224,000
B) $193,640
C) $101,648
D) $120,728

E) All of the above
F) B) and D)

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Question 73

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Morefield Corporation has provided the following information concerning a capital budgeting project: The company uses straight-line depreciation.The depreciation expense will be $10,000 per year.Assume cash flows occur at the end of the year except for the initial investments.The company takes income taxes into account in its capital budgeting.The income tax rate is 30% and the after-tax discount rate is 12%. Required: Determine the net present value of the project.Show your work!

Fontana Corporation is considering a capital budgeting project that would require investing $240,000 in equipment with an expected life of 4 years and zero salvage value.The annual incremental sales would be $640,000 and the annual incremental cash operating expenses would be $440,000.The company's income tax rate is 30%.The company uses straight-line depreciation on all equipment. The total cash flow net of income taxes in year 2 is:

Petro Corporation has provided the following information concerning a capital budgeting project: The working capital would be required immediately and would be released for use elsewhere at the end of the project.The company uses straight-line depreciation on all equipment.Assume cash flows occur at the end of the year except for the initial investments.The company takes income taxes into account in its capital budgeting. Required: Determine the net present value of the project.Show your work!

In net present value analysis,the release of working capital at the end of a project should be:

A capital budgeting project's incremental net income computation for purposes of determining incremental tax expense includes investments in working capital.

All cash inflows are taxable.

Yau Corporation is considering a capital budgeting project that would require investing $120,000 in equipment with a 4 year useful life and zero salvage value.Data concerning that project appear below: An investment of $20,000 in working capital would be required immediately and would be released for use elsewhere at the end of the project.The company uses straight-line depreciation on all equipment.Assume cash flows occur at the end of the year except for the initial investments.The company takes income taxes into account in its capital budgeting.The company's tax rate is 30% and the after-tax discount rate is 9%. Required: Determine the net present value of the project.Show your work!

(Appendix 13C) Paletta Corporation has provided the following information concerning a capital budgeting project: The company's income tax rate is 30% and its after-tax discount rate is 7%. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. -The total cash flow net of income taxes in year 2 is:

A capital budgeting project's incremental net income computation for purposes of determining incremental tax expense includes immediate cash outflows for initial investments in equipment.

(Appendix 13C) Layer Corporation has provided the following information concerning a capital budgeting project: The company's income tax rate is 30% and its after-tax discount rate is 8%. The working capital would be required immediately and would be released for use elsewhere at the end of the project. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. -The income tax expense in year 2 is:

(Appendix 13C) Planas Corporation has provided the following information concerning a capital budgeting project: The company's income tax rate is 35% and its after-tax discount rate is 14%. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. -The net present value of the entire project is closest to:

Mcelveen Corporation has provided the following information concerning a capital budgeting project: The company uses straight-line depreciation on all equipment.Assume cash flows occur at the end of the year except for the initial investments.The company takes income taxes into account in its capital budgeting. The net present value of the project is closest to:

Stepnoski Corporation is considering a capital budgeting project that would involve investing $280,000 in equipment with an estimated useful life of 4 years and no salvage value at the end of the useful life.Annual incremental sales from the project would be $610,000 and the annual incremental cash operating expenses would be $490,000.A one-time renovation expense of $20,000 would be required in year 3.The project would require investing $30,000 of working capital in the project immediately,but this amount would be recovered at the end of the project in 4 years.The company's income tax rate is 35% and its after-tax discount rate is 11%. The company uses straight-line depreciation on all equipment. The income tax expense in year 3 is:

Truskowski Corporation has provided the following information concerning a capital budgeting project: The company uses straight-line depreciation on all equipment; the annual depreciation expense will be $60,000.Assume cash flows occur at the end of the year except for the initial investments.The company takes income taxes into account in its capital budgeting. The net present value of the project is closest to:

Przewozman Corporation has provided the following information concerning a capital budgeting project: The working capital would be required immediately and would be released for use elsewhere at the end of the project.The company uses straight-line depreciation on all equipment.Assume cash flows occur at the end of the year except for the initial investments.The company takes income taxes into account in its capital budgeting. Required: Determine the net present value of the project.Show your work!

(Appendix 13C) Podratz Corporation has provided the following information concerning a capital budgeting project: The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. -The total cash flow net of income taxes in year 3 is:

(Appendix 13C) Rollans Corporation has provided the following information concerning a capital budgeting project: The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. -The net present value of the entire project is closest to:

In net present value analysis,an investment in equipment at the beginning of a project should be: