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Exam 30: Income Taxes and the Present Value Method

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Question 51

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Bratton 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 $40,000.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:

A) $125,560
B) $227,250
C) $143,000
D) $67,250

E) A) and C)
F) B) and C)

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Question 52

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(Appendix 13C) Boynes Corporation is considering a capital budgeting project that would require investing $200,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $490,000 and annual incremental cash operating expenses would be $330,000. The project would also require an immediate investment in working capital of $10,000 which would be released for use elsewhere at the end of the project. The project would also require a one-time renovation cost of $70,000 in year 3. The company's income tax rate is 30% and its after-tax discount rate is 14%. The company uses straight-line depreciation. 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:

A) $33,000
B) $48,000
C) $21,000
D) $12,000

E) B) and D)
F) B) and C)

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Question 53

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Coffie Corporation has provided the following information concerning a capital budgeting project: The company uses straight-line depreciation on all equipment. The total cash flow net of income taxes in year 2 is:

Porco Corporation is considering a capital budgeting project that would require investing $280,000 in equipment with a 4 year useful life and zero salvage value.Annual incremental sales would be $680,000 and annual incremental cash operating expenses would be $480,000.A one-time expense of $90,000 for renovations would be required in year 3.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 35% and the after-tax discount rate is 12%. Required: Determine the net present value of the project.Show your work!

(Appendix 13C) Correll 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. Annual incremental sales would be $570,000 and annual incremental cash operating expenses would be $420,000. The project would also require a one-time renovation cost of $40,000 in year 3. The company's income tax rate is 30% and its after-tax discount rate is 15%. The company uses straight-line depreciation. 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:

Mester 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:

(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 total cash flow net of income taxes in year 2 is:

A company anticipates incremental net income (i.e.,incremental taxable income) of $20,000 in year 3 of a project.The company's tax rate is 30% and its after-tax discount rate is 8%.The present value of this future cash flow is closest to:

Sester Corporation has provided the following information concerning a capital budgeting project: The expected life of the project and the equipment is 3 years and the equipment has zero salvage value.The company uses straight-line depreciation on all equipment and the depreciation expense on the equipment would be $250,000 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 net annual operating cash inflow is the difference between the incremental sales revenue and incremental cash operating expenses. Required: Determine the net present value of the project.Show your work!

The following information concerning a proposed capital budgeting project has been provided by Jochum Corporation: The expected life of the project is 4 years.The income tax rate is 35%.The after-tax discount rate is 9%.The company uses straight-line depreciation on all equipment and the annual depreciation expense would be $70,000.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:

(Appendix 13C) Bourland Corporation is considering a capital budgeting project that would require investing $80,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $250,000 and annual incremental cash operating expenses would be $180,000. The project would also require a one-time renovation cost of $40,000 in year 3. The company's income tax rate is 30% and its after-tax discount rate is 8%. The company uses straight-line depreciation. 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 3 is:

(Appendix 13C) Bourland Corporation is considering a capital budgeting project that would require investing $80,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $250,000 and annual incremental cash operating expenses would be $180,000. The project would also require a one-time renovation cost of $40,000 in year 3. The company's income tax rate is 30% and its after-tax discount rate is 8%. The company uses straight-line depreciation. 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:

Lennox Corporation has provided the following information concerning a capital budgeting project: The company's tax rate is 35%.The company's after-tax discount rate is 8%.The project would require an investment of $20,000 at the beginning of the project.This working capital would be released for use elsewhere at the end of the project.The company uses straight-line depreciation on all equipment. The total cash flow net of income taxes in year 2 is:

(Appendix 13C) Bedolla Corporation is considering a capital budgeting project that would require investing $160,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $430,000 and annual incremental cash operating expenses would be $310,000. The company's income tax rate is 30% and its after-tax discount rate is 8%. The company uses straight-line depreciation. 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:

(Appendix 13C) Lafromboise 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 total cash flow net of income taxes in year 3 is:

Colantro Corporation has provided the following information concerning a capital budgeting project: The company uses straight-line depreciation on all equipment. The income tax expense in year 2 is:

(Appendix 13C) Boynes Corporation is considering a capital budgeting project that would require investing $200,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $490,000 and annual incremental cash operating expenses would be $330,000. The project would also require an immediate investment in working capital of $10,000 which would be released for use elsewhere at the end of the project. The project would also require a one-time renovation cost of $70,000 in year 3. The company's income tax rate is 30% and its after-tax discount rate is 14%. The company uses straight-line depreciation. 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 3 is:

Hawthorn Corporation has provided the following information concerning a capital budgeting project: The expected life of the project and the equipment is 3 years and the equipment has zero salvage value.The company uses straight-line depreciation on all equipment and the depreciation expense on the equipment would be $170,000 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 net annual operating cash inflow is the difference between the incremental sales revenue and incremental cash operating expenses. 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 net present value of the entire project is closest to:

Schweinsberg Corporation is considering a capital budgeting project.The project would require an investment of $120,000 in equipment with a 4 year expected life and zero salvage value.The company uses straight-line depreciation and the annual depreciation expense will be $30,000.Annual incremental sales would be $230,000 and annual incremental cash operating expenses would be $180,000.The company's income tax rate is 30% and the after-tax discount rate is 15%.The company takes income taxes into account in its capital budgeting.Assume cash flows occur at the end of the year except for the initial investments. The net present value of the project is closest to: