Financial Accounting: Brandon Smith Enterprises has provided the following data to be used in evaluating a proposed investment project: Initial investment $800,000 Annual cash receipts $600,000 Life of the project 6 years Annual cash expenses $350,000 Salvage value Tax rate $85,000 25% For tax purposes, the entire initial investment without any deduction for salvage value will be depreciated over 4 years. The company uses a discount rate of 10%. When computing the net present value of the project, what are the annual after-tax cash receipts? a) $450,000 b) $120,000 c) $420,000 d) $348,000

Garnette Corp is considering the purchase of a new machine that will cost $342,000 and provide the following cash flows over the next five years: $99,000, $88,000, $92,000. $87,000, and $72,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel. see Appendix C.

Gallant Sports s considering the purchase of a new rock-climbing facility. The company estimates that the construction will require an initial outlay of $350,000. Other cash flows are estimated as follows: Assuming the company limits its analysis to four years due to economic uncertainties, determine the net present value of the rock-climbing facility. Should the company develop the facility if the required rate of return is 6%?

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?