How do I calculate and record the related after tax cash flow effect(s)? O Support-Dashboard BradleyAfter-Tax Cash FlowsBelow is a list of aspects of various capital expenditure proposals that the capital budgeting team of Anchor, Inc., has incorporated into its net present value analyses during the past year. Unless otherwise noted, the items listed are unrelated to each other. Allsituations assume a 40% income tax rate and an 11% minimum desired rate of return.1. Pre-tax savings of $4,000 in cash expenses will occur in each of the next three years.2. A machine is purchased now for $52,000 cash.3. A long-haul tractor costing $42,000 will be depreciated $14,000, $18,600, $6,300, and $3,100, respectively, on the tax return over four years.4. Equipment costing $225,000 will be depreciated over five years on the tax return in the following amounts: $28,125 $56,250 $56,250 $56,250 and $28,125.5. Pre-tax savings of $12,800 in cash expenses will occur in each of the next six years.6. Pre-tax savings of $11,000 in cash expenses will occur in the first, third, and fifth years from now.7. The tractor described in aspect 3 will be sold after four years for $9,000 cash.8. The equipment described in aspect 4 will be sold after four years for $24,000 cash.a. Calculate and record in column A the related after-tax cash flow effect(s).b. Indicate in column B the timing of each cash flow shown in column A. Use 0 to indicate immediately and 1, 2, 3, 4, and so on for each year involved.The answer to investment aspect 1 is presented as an example.Use negative signs with answers that are cash outflows.Under Column B, select the appropriate year for the timing of each cash flow using the drop down menu.After-taxInvestment Cash Flow Effect(s)Year(s) ofAspectInflows/ (Outflows)Cash Flow1$2,4002,4002,400330.40.0.0.0.0.0.0.2.

Answered: How do I calculate and record the…

Business

Finance

How do I calculate and record the related after tax cash flow effect(s)?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter13: Capital Budgeting: Estimating Cash Flows And Analyzing Risk

Section: Chapter Questions

Problem 2P

See similar textbooks

Similar questions

Basic Capital Budgeting Techniques Answer each independent question, (a) through (e).a. Project A costs $5,000 and will generate annual after-tax net cash inflows of $1,800 for 5 years.What is the payback period (in years, rounded to 2 decimal places) for this investment under theassumption that the cash inflows occur evenly throughout the year?b. Project B costs $5,000 and will generate after-tax cash inflows of $500 in year 1, $1,200 in year2, $2,000 in year 3, $2,500 in year 4, and $2,000 in year 5. What is the payback period (in years,rounded to 2 decimal places) for this investment assuming that the cash inflows occur evenlythroughout the year?c. Project C costs $5,000 and will generate net cash inflows of $2,500 before taxes each year for 5years. The firm uses straight-line depreciation with no salvage value and is subject to a 25% taxrate. What is the payback period (in years, and rounded to 2 decimal places) under the assumptionthat all cash inflows occur evenly throughout the…
NOT GRADED After-Tax Cash FlowsBelow is a list of aspects of various capital expenditure proposals that the capital budgeting team of Anchor, Inc., has incorporated into its net present value analyses during the past year. Unless otherwise noted, the items listed are unrelated to each other. All situations assume a 40% income tax rate and an 11% minimum desired rate of return.1. Pre-tax savings of $4,000 in cash expenses will occur in each of the next three years.2. A machine is purchased now for $52,000 cash.3. A long-haul tractor costing $42,000 will be depreciated $14,000, $18,600, $6,300, and $3,100, respectively, on the tax return over four years.4. Equipment costing $225,000 will be depreciated over five years on the tax return in the following amounts: $28,125 $56,250 $56,250 $56,250 and $28,125.5. Pre-tax savings of $12,800 in cash expenses will occur in each of the next six years.6. Pre-tax savings of $11,000 in cash expenses will occur in the first, third, and fifth years…
After-Tax Cash FlowsBelow is a list of aspects of various capital expenditure proposals that the capital budgeting team of Anchor, Inc., has incorporated into its net present value analyses during the past year. Unless otherwise noted, the items listed are unrelated to each other. All situations assume a 40% income tax rate and an 11% minimum desired rate of return.1. Pre-tax savings of $4,000 in cash expenses will occur in each of the next three years.2. A machine is purchased now for $46,000 cash.3. A long-haul tractor costing $36,000 will be depreciated $12,000, $16,000, $5,400, and $2,600, respectively, on the tax return over four years.4. Equipment costing $215,000 will be depreciated over five years on the tax return in the following amounts: $26,875 $53,750 $53,750 $53,750 and $26,875.5. Pre-tax savings of $10,800 in cash expenses will occur in each of the next six years.6. Pre-tax savings of $9,000 in cash expenses will occur in the first, third, and fifth years from now.7. The…
After-Tax Cash FlowsBelow is a list of aspects of various capital expenditure proposals that the capital budgeting team of Anchor, Inc., has incorporated into its net present value analyses during the past year. Unless otherwise noted, the items listed are unrelated to each other. All situations assume a 40% income tax rate and an 11% minimum desired rate of return.1. Pre-tax savings of $4,000 in cash expenses will occur in each of the next three years.2. A machine is purchased now for $52,000 cash.3. A long-haul tractor costing $42,000 will be depreciated $14,000, $18,600, $6,300, and $3,100, respectively, on the tax return over four years.4. Equipment costing $225,000 will be depreciated over five years on the tax return in the following amounts: $28,125 $56,250 $56,250 $56,250 and $28,125.5. Pre-tax savings of $12,800 in cash expenses will occur in each of the next six years.6. Pre-tax savings of $11,000 in cash expenses will occur in the first, third, and fifth years from now.7.…
Foster Manufacturing is analyzing a capital investment project that is forecasted to produce the following cash flows and net income: After-Tax Cash Flows $(20,000) Net Income Year 1 6,000 2,000 6,000 8,000 2,000 3 2,000 8,000 2,000 Using the present value tables provided in Appendix A, the internal rate of return (rounded to the nearest whole percentage) is: а. 5%. b. 12%. C 14%. d. 40%.
A firm is evaluating its two independent projects, L (22) and W(34) for this year’s capital budgeting . The firm’s cost of capital or the required rate of return is 14%. The net incremental cash flows after tax for both the projects are as follows: Outflows Inflows Projects Year 1 2 3 4 5 L (22) -6,000 2,000 2,000 2,000 2,000 4,000 W (34) -18,000 5,600 5,600 5,600 5,600 6,600 Required: Calculate for each project: Payback Period IRR NPV PI Give your decision regarding acceptation and rejection of the project and explain your basis for the decision.
The Potential for Multiple IRRs A proposed investment has the following projected after-taxcash flows over its 3-year life:Initial outlay (time 0) = ($1,000)End of year 1 = $2,000End of year 2 = $2,000End of year 3 = ($3,700) Required 1. In a capital budgeting context, explain the difference between a normal and a non-normal cash flowpattern. What is the importance of this distinction for estimating the internal rate of return (IRR) of aproposed investment? 2. For the proposed investment project just described, how many IRRs will there be? Why?3. Use Excel to prepare a graph of the net present value (NPV) profile of the proposed investment describedherein. On the X-axis, show discount rates from 0% to 120%, in increments of 5%. On the Y-axis, showthe estimated NPV of the project for each of the specified discount rates. (Use the built-in NPV functionin Excel to estimate the NPVs.) Based on a visual examination of the graph, what are the two estimatedIRRs for the proposed investment? 4.…
Economics Assume the data below describes the real cash flow of a 9-year project and all expenditures made at the beginning of each period. Using 10% discount rate, the investment cost (for the first four years starting from year 0), in present value terms, in year 0 is $1,403.08 and $1,867.50 when evaluated as of the beginning of year 4. What is the accrued opportunity cost of capital at the beginning of year 4? Year 0 = -500 Year 1 = -200 Year 2 = -600 Year 3 = -300 Year 4 = +520 Year 5 = +634 Year 6 = +736 Year 7 = +785 Year 8 = +861
As assistant to the CFO of Boulder Inc., you must estimate the Year 1 cash flow for a project with the following data. What is the Year 1 cash flow? Sales revenues $13,000 Depreciation $4,000 Otheroperatingcosts $6,000 Tax rate 35.0%
Suppose that you are working as a capital budgeting analyst in a finance department of a firm and you are going to evaluate two mutually exclusive projects by implementing different capital budgeting techniques. The cash flows for these two projects are given below. YEAR / CASH FLOW (A) /CASH FLOW (B)0 -$17,000 -$17,0001 8,000 2,0002 7,000 5,0003 5,000 9,0004 3,000 9,500 a)The crossover point on NPV profile is 12.18%. Above that point which project should you accept? Explain the relevance of the crossover point. How should you convince your boss that the NPV method is the way to go when it is compared with IRR? In other words what are the shortcomings of IRR method? b)Calculate the Profitability Index for each proposal. Which project should you accept? Can this measure help to solve the dilemma?…
Simple Investment Allocation Case: This year, 2022 ABM Company selected your team to manage their allotted budget amounting to 10 million pesos for investment diversification portfolio. Your team was assigned to handle the said account. Question: How would you allocate funds?
Suppose that you are working as a capital budgeting analyst in a finance department of a firm and you are going to evaluate two mutually exclusive projects by implementing different capital budgeting techniques. The cash flows for these two projects are given below. YEAR / CASH FLOW (A) /CASH FLOW (B)0 -$17,000 -$17,0001 8,000 2,0002 7,000 5,0003 5,000 9,0004 3,000 9,500 a. Calculate the Payback Period of each project. Which project should you accept according to this method? Explain whether the Payback Period is or is not an appropriate method in this case. b. Suppose that the discount rate is 11%. Calculate the Net Present Values (NPV) of both projects. Which project should you accept according to NPV? Evaluate your findings. c. Calculate the Internal Rate of Returns (IRR) for both projects (use excel). Which…