You are evaluating a project that will require an investment of $18 million that will be depreciated over a period of 18 years. You areconcerned that the corporate tax rate will increase during the life of the project.a. Would this increase the accounting break-even point?b. Would it increase the NPV break-even point?a. Would this increase the accounting break-even point?b. Would it increase the NPV break-even point?

When the business tax rate rises, several things can affect project evaluation: a. Would this…

Answered: You are evaluating a project that will…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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what is the present value of the tax shield for the following project? the initial investment is $300,000. the project will last for 6 years, at which time the asset will be sold for $90,000. the asset will be depreciated on a declining balance basis at a rate of 20 percent. the firm's marginal tax rate is 40 percent. the firm's required rate of return is 8 percent a) 16,204.36 b) 82,539.68 c) 98,744.04 d) 66,335.32
If by accepting Project A you reduce the after tax cash flows of another Project B of your firm by $100,000 per year for the life of Project A you should when calculating the marginal annual cash flows of Project A. a. ignore the $100,000 but decrease the discount rate b. ignore the $100,000 but increase the discount rate c. subtract the $100,000 per year d. ignore the $100,000 per year e. add on the $100,000 per year
I was thinking about the topic B. What would be the answer : b. Ignoring tax, depreciation, and the time value of money, determine how long it will take to recover (pay back) the investment. It will takeenter your response hereyears.(Enter your response rounded to two decimal places.)
Determine the following: 1. Determine the initial investment required by the press. 2. Determine the annual after tax cash inflows attributable to the press from year 1 to 4 3. Determine the after tax cash flow on year 5. 4. ASSUMING the project’s IRR is 25%, the discount rate should be above 25% for the project to have a PW higher than zero (true or false) 5. Assuming that at the very last minute, you are able to sell the equipment for 200,000 (without altering the book value). What is the cash flow on year 5? PROBLEM: Wells Printing is considering expanding its business by purchasing a printing press. The cost of the press is $2 million. Installation costs amount to $200,000. As a result of acquisition of the press, sales in each of the next 5 years are expected to be $1.6 million from this new line of business, but product costs (excluding depreciation) will represent 50% of sales. The press will not affect the firm’s net working capital requirements. The press will be depreciated…
One of the methods to evaluate a project is by estimating the Net Present value of that particular project. In order to do so, the working capital is included in the capital budgeting analysis and it will be then recovered at the end of a project’s life. Consider the following scenarios. You will need to use the data provided to solve the question. Temple Corp. is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, would be depreciated by the straight-line method over its 3-year life, and would have a zero salvage value. No new working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. b) Estimate the Cash Flows from year 1 to year 3 for the proposed project.
One of the methods to evaluate a project is by estimating the Net Present value of that particular project. In order to do so, the working capital is included in the capital budgeting analysis and it will be then recovered at the end of a project’s life. Consider the following scenarios. You will need to use the data provided to solve the question. Temple Corp. is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, would be depreciated by the straight-line method over its 3-year life, and would have a zero salvage value. No new working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. a. Estimate the annual depreciation that the company needs to pay from year 1 to year 3.
2. What is your best estimate of the weighted average cost of capital with and without the $100 million in borrowing ? You could invest those $100 million in a new project with a business risk (ie, asset risk) very similar to the current business risk of the company. This project has an expected before-tax revenues of $50 million, and costs of $30 million a year in perpetuity. Assume that the annual new capital expenditures are offset by the depreciation (5 million) and that annual NWC investment is negligible.
Suppose that Sudbury Mechanical Drifters is proposing to invest $20.0 million in a new factory. It can depreciate this investment straight-line over 10 years. The tax rate is 40%, and the discount rate is 10%. a. What is the present value of Sudbury's depreciation tax shields? b. What would be the present value of the tax shield if the government allowed Sudbury to write-off the factory immediately? Complete this question by entering your answers in the tabs below. Required A Required B What is the present value of Sudbury's depreciation tax shields? Note: Enter your answers in millions rounded to 1 decimal place. Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Total Depreciation straight-line, 10-year Tax Shields at 40% tax rate PV (Tax Shields) at 10%
Can you help in calculating the NPV for this ? Consider the following data - A machine costs $600 today (year 0). Assume this investment is fully tax-deductible, as stipulated by the new US corporate tax code of 2018. - This company has current pre-tax profits from other projects that are greater than $600, so it can take full advantage of the investment tax break above in year 0. - The machine will generate operating profits before depreciation (EBITDA) of $312 per year for 5 years. The first cash flow happens one year after the machine is put in place (year 1). - Depreciation is not tax-deductible. Notice that you do not need to calculate depreciation at all to solve this problem since it has no effect on taxes. - The tax rate is 21%…
Suppose that Sudbury Mechanical Drifters is proposing to invest $10 million in a new factory. It can depreciate this investment straight-line over 10 years. The tax rate is 40%, and the discount rate is 10%. a. What is the present value of Sudbury's depreciation tax shields? b. What would be the present value of the tax shield if the government allowed Sudbury to write-off the factory immediately? Complete this question by entering your answers in the tabs below. Required A Required B What is the present value of Sudbury's depreciation tax shields? Note: Enter your answers in millions rounded to 1 decimal place. Depreciation straight-line, 10-year Tax Shields at 40% tax rate PV (Tax Shields) at 10% Year 1 Year 2 Year 3 Year 4 Year 5 Suppose that Sudbury Mechanical Drifters is proposing to invest $10 million in a new factory. It can depreciate this investment straight-line over 10 years. The tax rate is 40%, and the discount rate is 10%. a. What is the present value of Sudbury's…
(Ignore income taxes in this problem.) Your Company is considering an investment in a project that will have a three-year life. The project will provide a 4% internal rate of return and is expected to have a $40,000 cash inflow the first year and a $0 cash inflow in the second year, and $50,000 cash inflow in the third year. What investment is required in the project?
Taxes are costs, and, therefore, changes in tax rates can affect consumer prices, project lives, and the value of existing firms. Evaluate the change in taxation on the valuation of the following project: Assumptions: Tax depreciation is straight-line over three years. Pre-tax salvage value is 25 in Year 3 and 50 if the asset is scrapped in Year 2. Tax on salvage value is 40% of the difference between salvage value and book value of the investment. The cost of capital is 20%. 4. Would it now make sense to terminate the project after two rather than three years? 5. How would your answers change if the corporate income tax were abolished entirely? NOTE: The three initial question was sent before these last two. please clarify the answer as much as possible in the Excel spreadsheet. The table to the question is attchedThank you

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