16th Edition

ISBN: 9781259995484

Author: Ray Garrison

Publisher: MCGRAW-HILL HIGHER EDUCATION

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Textbook Question

Chapter 13.C, Problem 5P

PROBLEM 13C-5 Income Taxes and Net Present Value Analysis L013-5, L013-8

Shimano Company has an opportunity to manufacture and sell one of two new products for a fiveyear period. The company’s tax rate is 30% and its after-tax cost of capital is 14%. The cost and revenue estimates for each product are as follows:

Product A Product B
Initial Investment in equipment…………….......................... $400,000 $550,000
Initial investment in working capital………………………... $85,000 $60,000
Annual sales …………………………………………………. $370,000 $390,000
Annual cash operating expenses…………………………….. $200,000 $170,000
Cost of repairs needed in three years………………………... $45,000 $70,000
The equipment pertaining to both products has a useful life of five years and no salvage value. The company uses the straight-line depreciation method for financial reporting and tax purposes. At the end of five years, each products ‘s working capital will be released for investment elsewhere within the company.

Required:

Calculate the annual income tax expense for each of years 1 through 5 that will arise if Product A is introduced.
Calculate the net present value of the investment opportunity pertaining to Product A.
Calculate the annual income tax expense for each of years 1 through 5 that will arise if Product B is intoduced.
Calculate the net present value of the investment opportunity pertaining to Product B.
Calculate the project profitability index for Product A and Product B. Which of the two products should the company purses? Why?

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Chapter 13.C, Problem 4P

Chapter 13, Problem 1Q

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Ch. 13.A - Prob. 1E Ch. 13.A - Prob. 2E Ch. 13.A - Prob. 3E Ch. 13.A - Prob. 4E Ch. 13.A - Exercises 13A-5 Basic Present Value Concepts...Ch. 13.A - Prob. 6E Ch. 13.C - Prob. 1E Ch. 13.C - Prob. 2E Ch. 13.C - PROBLEM 13C-3 Income Taxes and Net Present Value...Ch. 13.C - Prob. 4P

Ch. 13.C - PROBLEM 13C-5 Income Taxes and Net Present Value...Ch. 13 - Prob. 1Q Ch. 13 - Prob. 2Q Ch. 13 - Prob. 3Q Ch. 13 - Prob. 4Q Ch. 13 - Prob. 5Q Ch. 13 - Prob. 6Q Ch. 13 - Prob. 7Q Ch. 13 - Prob. 8Q Ch. 13 - Prob. 9Q Ch. 13 - Prob. 10Q Ch. 13 - Prob. 11Q Ch. 13 - Prob. 12Q Ch. 13 - Prob. 13Q Ch. 13 - Prob. 14Q Ch. 13 - What is the major criticism of the payback and...Ch. 13 - The Excel worksheet form that appears below is to...Ch. 13 - Prob. 1F15 Ch. 13 - Prob. 2F15 Ch. 13 - Prob. 3F15 Ch. 13 - Prob. 4F15 Ch. 13 - Prob. 5F15 Ch. 13 - Prob. 6F15 Ch. 13 - Prob. 7F15 Ch. 13 - Prob. 8F15 Ch. 13 - Prob. 9F15 Ch. 13 - Prob. 10F15 Ch. 13 - ( 595.000 )...Ch. 13 - Prob. 12F15 Ch. 13 - Prob. 13F15 Ch. 13 - Prob. 14F15 Ch. 13 - Prob. 15F15 Ch. 13 - Prob. 1E Ch. 13 - Prob. 2E Ch. 13 - Prob. 3E Ch. 13 - Prob. 4E Ch. 13 - Prob. 5E Ch. 13 - Prob. 6E Ch. 13 - Prob. 7E Ch. 13 - Prob. 8E Ch. 13 - Prob. 9E Ch. 13 - Prob. 10E Ch. 13 - Prob. 11E Ch. 13 - Prob. 12E Ch. 13 - Prob. 13E Ch. 13 - Prob. 14E Ch. 13 - EXERCISE 13-15 Internal Rateof Return and Net...Ch. 13 - Prob. 16P Ch. 13 - PROBLEM 13-17 Net Present Value Analysis; Internal...Ch. 13 - Prob. 18P Ch. 13 - Prob. 19P Ch. 13 - Prob. 20P Ch. 13 - Prob. 21P Ch. 13 - Prob. 22P Ch. 13 - Prob. 23P Ch. 13 - Prob. 24P Ch. 13 - Prob. 25P Ch. 13 - Prob. 26P Ch. 13 - PROBLEM 13-27 Net Present Value Analysis...Ch. 13 - Prob. 28P Ch. 13 - Prob. 29P Ch. 13 - Prob. 30P Ch. 13 - Prob. 31C Ch. 13 - Prob. 32C

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