MANAGERIAL ACCOUNTING FOR MANGER CONNEC
6th Edition
ISBN: 9781266809132
Author: Noreen
Publisher: MCG
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Chapter 7C, Problem 7C.1E
To determine
Concept Introduction:
The
The net present value of the investment.
Expert Solution & Answer
Answer to Problem 7C.1E
The net present value of the investment is $145,511.
Explanation of Solution
The net present value of the investment is calculated as follows:
| Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
| Initial investment (I) | $ (2,000,000) | |||||
| Net operating income (A) | $ 300,000 | $ 300,000 | $ 300,000 | $ 300,000 | $ 300,000 | |
| Income tax (B) = (A*30%) | $ 90,000 | $ 90,000 | $ 90,000 | $ 90,000 | $ 90,000 | |
| Income after tax (C) = (A-B) | $ 210,000 | $ 210,000 | $ 210,000 | $ 210,000 | $ 210,000 | |
| Depreciation (D) | $ 400,000 | $ 400,000 | $ 400,000 | $ 400,000 | $ 400,000 | |
| Cash inflows after tax (E) = (C+D) | $ 610,000 | $ 610,000 | $ 610,000 | $ 610,000 | $ 610,000 | |
| Net cash flows (F) = (I+E) | $ (2,000,000) | $ 610,000 | $ 610,000 | $ 610,000 | $ 610,000 | $ 610,000 |
| PV of $ 1(13%) (G) | 1.00000 | 0.88496 | 0.78315 | 0.69305 | 0.61332 | 0.54276 |
| PV = F*G | $ (2,000,000) | $ 539,823 | $ 477,719 | $ 422,761 | $ 374,124 | $ 331,084 |
| Net present value (Sum of PVs) | $ 145,511 |
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Please include excel formula
Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.18 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $1.645 million in annual sales, with costs of $610,000. The tax rate is 21 percent. If the required return is 12 percent, what is the project's NPV?
Input area:
Asset investment
$2,180,000
Estimated annual sales
$1,645,000
Costs
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Tax rate
21%
Project and asset life
3
Required return
12%
Output area:
Sales
Costs
Depreciation
EBT
Taxes
Net income
OCF
NPV
7.2
Project Beta is a 6-year project which requires an initial outlay of $4,000. This outlay will be depreciated using straight-line depreciation over the life of the project. It will generate incremental revenue of $2000 per year and incremental costs (excluding depreciation) of $500. The tax rate is 30%.
What is the project's annual tax payable?
a.
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b.
$583
c.
$250
d.
$117
Clear my choice
es
A 7-year project is expected to provide annual sales of $221,000 with costs of $97,500. The equipment necessary for the project will cost $360,000 and will
be depreciated on a straight-line method over the life of the project. You feel that both sales and costs are accurate to +/-15 percent. The tax rate is 21
percent. What is the annual operating cash flow for the worst-case scenario?
Multiple Choice
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O
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$70,623
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$49.221
Chapter 7C Solutions
MANAGERIAL ACCOUNTING FOR MANGER CONNEC
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