EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Garfield Inc. is considering a 10-year
capital investment project with forecasted
cash revenues of $40,000 per year and
forecasted cash operating costs of $29,000
per year. The initial cost of the
equipment for the project is $23,000, and
Garfield expects to sell the equipment for
$9,000 at the end of the tenth year. The
equipment will be depreciated on a
straight-line basis over seven years for
tax purposes. The project requires a
working capital investment of $7,000 at
its inception and another $5,000 at the
end of year 5. The working capital is fully
recoverable at the end of the life of the
project. Assuming a 40% tax rate, the
project. Assuming a 40% tax rate, expected
net after-tax cash flow from the project
for the tenth year is:
a. $32,000
b. $24,000
c. $20,000
d. $11,000
e. $12,000
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Transcribed Image Text:Garfield Inc. is considering a 10-year capital investment project with forecasted cash revenues of $40,000 per year and forecasted cash operating costs of $29,000 per year. The initial cost of the equipment for the project is $23,000, and Garfield expects to sell the equipment for $9,000 at the end of the tenth year. The equipment will be depreciated on a straight-line basis over seven years for tax purposes. The project requires a working capital investment of $7,000 at its inception and another $5,000 at the end of year 5. The working capital is fully recoverable at the end of the life of the project. Assuming a 40% tax rate, the project. Assuming a 40% tax rate, expected net after-tax cash flow from the project for the tenth year is: a. $32,000 b. $24,000 c. $20,000 d. $11,000 e. $12,000
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