PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 6, Problem 17PS
Taxes and project
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4. What factors should be considered when estimating a new business'
NINV? Is it any different for an asset replacement project.
5. Why is depreciation, a noncash expense, considered when estimating
a project's net
cash flows?
6. What are the potential tax consequences of selling an old asset in an
asset replacement investment decision?
What is depreciation and amortization? What's the difference? It is an accounting concept that has an indirect impact on cash flow as it is deductible for tax purposes and lowers the overall amount of taxes paid for that period. Therefore, it does impact or lower cash outflows for taxes. That is called the tax shield of depreciation and amortization.
Over the course of my career, companies have increased their percentage of intangible property that must be amortized. Now, it is very common where companies will have little property, plant and equipment, but lots of intangible property. Why?
How is a business activity distinguished from an investment activity? why is this distinction important for the purpose of calculating federal income taxes?
What types of losses may potentially be characterized as passive losses?
Chapter 6 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 6 - Cash flows Which of the following should be...Ch. 6 - Cash flows Reliable Electric, a major Ruritanian...Ch. 6 - Prob. 3PSCh. 6 - Prob. 4PSCh. 6 - Real and nominal flows Mr. Art Deco will be paid...Ch. 6 - Real and nominal flows Restate the net cash flows...Ch. 6 - Real and nominal flows Guandong Machinery is...Ch. 6 - Working capital Each of the following statements...Ch. 6 - Prob. 9PSCh. 6 - Project NPV Better Mousetraps research...
Ch. 6 - Project NPV A widget manufacturer currently...Ch. 6 - Project NPV Marsha Jones has bought a used...Ch. 6 - Project NPV United Pigpen is considering a...Ch. 6 - Project NPV Imperial Motors is considering...Ch. 6 - Project NPV and IRR A project requires an initial...Ch. 6 - Taxes and project NPV In the International Mulch...Ch. 6 - Depreciation and project NPV Suppose that Sudbury...Ch. 6 - Depreciation and project NPV Ms. T. Potts, the...Ch. 6 - Prob. 20PSCh. 6 - Prob. 21PSCh. 6 - Prob. 22PSCh. 6 - Equivalent annual cash flow Look at Problem 22...Ch. 6 - Equivalent annual cash flow Deutsche Transport can...Ch. 6 - Prob. 25PSCh. 6 - Mutually exclusive investments and project lives...Ch. 6 - Mutually exclusive investments and project lives...Ch. 6 - Mutually exclusive investments and project lives....Ch. 6 - Mutually exclusive investments and project lives...Ch. 6 - Mutually exclusive investments and project lives...Ch. 6 - Replacement decisions Machine C was purchased five...Ch. 6 - Replacement decisions Hayden Inc. has a number of...Ch. 6 - Replacement decisions. You are operating an old...Ch. 6 - Replacement decisions. A forklift will last for...Ch. 6 - The cost of excess capacity The presidents...Ch. 6 - Effective tax rates One measure of the effective...Ch. 6 - Equivalent annual costs We warned that equivalent...
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- True or False: If a project involves buying an asset, and if the company uses “accelerated depreciation” for tax purposes, after-tax cash flows for the project would be smaller in earlier years of the project than if the company used “straight line depreciation”, and therefore the project’s NPV would be smaller if it used accelerated depreciation, compared to the NPV if it used straight-line depreciation. Explain your answer.arrow_forwardAssuming that taxes are to be raised, which tax increase would be least detrimental to long term economic growth, a GST/HST increase or an increase in income tax? Assume that either of the increases would be revenue neutral, i.e., the federal government would take in the same amount of revenue with either tax that is raised.arrow_forwardA company can either purchase or lease an asset. When comparing the two alternatives, which of the following is not an advantage of buying and financing the asset? (a) the possibility of receiving an investment tax credit (b) Obtaining a tax deduction for the depreciation expense (c) The potential of the asset to appreciate in value (d) Improved financial leveragearrow_forward
- As a capital gain taxed at the long-term tax rate Depreciation expenses directly affect a company's taxable income. An increase in depreciation expense will lead to a tax deducted from a company's earnings, thus leading to a operating cash flow. will According to a tax law established in 1969, taxpayers must pay the Which of the following cash outflows cannot be deducted from the operating income to derive the taxable income? O Dividends paid O Interest paid taxable income. It of the Alternative Minimum Tax (AMT) or regular tax.arrow_forwarda. For reporting purposes, management prefers higher profit; for tax purposes, lower taxable income is desired. To meet these goals, firms often use different methods of depreciation for tax and reporting purposes. Which depreciation method is best for reporting and which for tax purposes in the short run? Why?arrow_forwardWhat is a modified accelerated cost recovery system(MACRS)? Speculate as to why this system is nowrequired for tax purposes.arrow_forward
- The faster an asset can be depreciated, according to IRS rules, the greater a company's after-tax profits. Is this true or false?arrow_forwardIn which situation does the tax depreciation allow the firms to defer paying income taxes?arrow_forwardexplain what a growing balance in the deffered income tax liability is likely to indicate about a company's net income relative to its taxable income. Why might investment professional view this situation positively? negatively?arrow_forward
- how would I find the difference between net operating income if the project is eliminated?arrow_forwardSuppose a government starts spending less than it receives in tax revenue each year. All else equal, this action would cause the net present value of firms' projects to do what: a. Increase b. Decrease c. Change uncertainly d. Not changearrow_forwardc. What are the interest tax shields from the project? What is their present value? d. Show that the APV of Alcatel-Lucent's project matches the value computed using the WACC method Make sure to provide in TEXT. No to SNIP AND HANDRWRITING. MAKE SURE IT IS CORRECT ALSO. NOT FROM CHAT GOT. Clean format. Thank you. I’ll rate you uplikearrow_forward
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