A 4-year project has an annual operating cash flow of $50,000. At the beginning of the project, $4,100 in net working capital was required, which will be recovered at the end of the project. The firm also spent $22.100 on equipment to start the project. This equipment will have a book value of $4,540 at the end of the project, but can be sold for $5,580. The tax rate is 22 percent. What is the Year 4 cash flow?

A 4-year project has an annual operating cash flow of $50,000. At the beginning of the project, $4,100 in net working capital was required, which will be recovered at the end of the project. The firm also spent $22.100 on equipment to start the project. This equipment will have a book value of $4,540 at the end of the project, but can be sold for $5,580. The tax rate is 22 percent. What is the Year 4 cash flow?

Name: A 4-year project has an annual operating cash flow of $50,000. At the
Uploaded: 2024-03-20T06:50:59.000Z
Channel: Bartleby
Description: A 4-year project has an annual operating cash flow of $50,000. At the beginning of the project, $4,100 in net working capital was required, which will berecovered at the end of the project. The firm also spent $22,100 on equipment to start the proje

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 17E: Postman Company is considering two independent projects. One project involves a new product line,...

See similar textbooks

Similar questions

Postman Company is considering two independent projects. One project involves a new product line, and the other involves the acquisition of forklifts for the Materials Handling Department. The projected annual operating revenues and expenses are as follows: Required: Compute the after-tax cash flows of each project. The tax rate is 40 percent and includes federal and state assessments.
The Rodriguez Company is considering an average-risk investment in a mineral water spring project that has an initial after-tax cost of 170,000. The project will produce 1,000 cases of mineral water per year indefinitely, starting at Year 1. The Year-1 sales price will be 138 per case, and the Year-1 cost per case will be 105. The firm is taxed at a rate of 25%. Both prices and costs are expected to rise after Year 1 at a rate of 6% per year due to inflation. The firm uses only equity, and it has a cost of capital of 15%. Assume that cash flows consist only of after-tax profits because the spring has an indefinite life and will not be depreciated. a. What is the present value of future cash flows? (Hint: The project is a growing perpetuity, so you must use the constant growth formula to find its NPV.) What is the NPV? b. Suppose that the company had forgotten to include future inflation. What would they have incorrectly calculated as the projects NPV?
Edelman Engineering is considering including two pieces of equipment, a truck and an overhead pulley system, in this year’s capital budget. The projects are independent. The cash outlay for the truck is $17,100, and that for the pulley system is $22,430. The firm’s cost of capital is 14%. After-tax cash flows, including depreciation, are as follows: Calculate the IRR, the NPV, and the MIRR for each project, and indicate the correct accept/reject decision for each.
Manzer Enterprises is considering two independent investments: A new automated materials handling system that costs 900,000 and will produce net cash inflows of 300,000 at the end of each year for the next four years. A computer-aided manufacturing system that costs 775,000 and will produce labor savings of 400,000 and 500,000 at the end of the first year and second year, respectively. Manzer has a cost of capital of 8 percent. Required: 1. Calculate the IRR for the first investment and determine if it is acceptable or not. 2. Calculate the IRR of the second investment and comment on its acceptability. Use 12 percent as the first guess. 3. What if the cash flows for the first investment are 250,000 instead of 300,000?
The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $22,500, and it is expected to generate net after-tax operating cash flows, including depreciation, of $6,250 per year. The truck has a 5-year expected life. The expected salvage values after tax adjustments for the truck are given here. The company’s cost of capital is 10%. Should the firm operate the truck until the end of its 5-year physical life? If not, then what is its optimal economic life? Would the introduction of salvage values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project?
In the fourth and final year of a project, XYZ expects operating cash flow after taxes of P440,000. The project required an P60,000 investment in working capital at the beginning. Of that amount, P40,000 will be recovered in year 4 and P20,000 will be in year 5. Machinery associated with the project will be sold for exactly its undepreciated value of P15,000. Tax rate is 40%. Total free cash flow for the fourth year is
A 4-year project has an annual operating cash flow of $56,500. At the beginning of the project, $4,750 in net working capital was required, which will be recovered at the end of the project. The firm also spent $23,400 on equipment to start the project. This equipment will have a book value of $5,060 at the end of the project, but can be sold for $5,970. The tax rate is 35 percent. What is the Year 4 cash flow? Multiple Choice O $67,539 $21,753 $57,402 $66,902 $65,131
A 4-year project has an annual operating cash flow of $55,000. At the beginning of the project, $4,600 in net working capital was required, which will be recovered at the end of the project. The firm also spent $23,100 on equipment to start the project. This equipment will have a book value of $4,940 at the end of the project, but can be sold for $5,880. The tax rate is 35 percent. What is the Year 4 cash flow?
A project requires an initial investment of $150,000, to be depreciated straight-line over 3 years to an expected salvage value of $0. In addition, working capital will increase during the life of the project and amount to 20% of next year’s revenues, with the investment in working capital to be made at the beginning of each year. The project will generate $150,000 additional annual revenues and $85,000 additional annual expenses. The tax rate is 25%. Cost of capital amount to 7,5%. Please calculate the Net Present Value of the project and show your calculations. Would you recommend the investment? Please explain your advice.
St. John's & Sons Sanitation Services is evaluating a project that will increase annual sales by $145,000 and annual cash costs by $94,000. The project will initially require $110,000 in fixed assets that will be depreciated straight-line to a zero book value over the 4-year life of the project. The applicable tax rate is 32 percent. What is the operating cash flow for this project? a. $11,220b. $29,920c. $43,480d. $46,620
A project with a life of 6 years is expected to provide annual sales of $380,000 and costs of $269,000. The project will require an investment in equipment of $670,000, which will be depreciated on a straight-line method over the life of the project. You feel that both sales and costs are accurate to +/−15 percent. The tax rate is 21 percent. What is the annual operating cash flow for the best-case scenario
Shelly's Boutique is evaluating a project which will increase annual sales by $70,000 and annual costs by $40,000. The project will initially require $100,000 in fixed assets which will be depreciated straight-line to a zero book value over the 5-year life of the project. The applicable tax rate is 34 percent. What is the operating cash flow for this project?