MANAGERIAL ACCOUNTING F/MGRS.
6th Edition
ISBN: 9781264100590
Author: Noreen
Publisher: RENT MCG
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Chapter 7C, Problem 7C.3P
To determine
Concept Introduction:
Taxes are the amount paid by the business to the government.
Requirement-1:
To Calculate:
Taxes Paid.
To determine
Concept Introduction:
Net present value: It is the net inflow from the project which is calculated after considering the taxes and present value factor. It is calculated by reducing the net cash outflow from the net cash inflow. NPV helps in decision making regarding a project.
Taxes are the amount paid by the business to the government.
Requirement-2:
To Calculate:
Net Present Value.
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Ursus, Incorporated, is considering a project that would have a ten-year life and would require a $2,552,000 investment in equipment.
At the end of ten years, the project would terminate and the equipment would have no salvage value. The project would provide net
operating income each year as follows (Ignore income taxes.):
Sales
Variable expenses.
Contribution margin
Fixed expenses:
Fixed out-of-pocket cash expenses
Depreciation
Net operating income.
b. Compute the project's internal rate of return.
Note: Round your final answer to the nearest whole percent.
c. Compute the project's payback period.
Note: Round your answer to 2 decimal place.
d. Compute the project's simple rate of return.
Note: Round your final answer to the nearest whole percent.
a. Net present value
b. Internal rate of return
c. Payback period
d. Simple rate of return
All of the above items, except for depreciation, represent cash flows. The company's required rate of return is 14%.
Required:
a. Compute…
Income Taxes and Net Present Value Analysis
Lander Company has an opportunity to pursue a capital budgeting project with a five-year time horizon. After careful study, Lander estimated the following costs and revenues for the project:
The piece of equipment mentioned above has a useful life of five years and zero salvage value. Lander uses straight-line depreciation for financial reporting and tax purposes. The company’s tax rate is 30% and its after-tax cost of capital is 12%. When the project concludes in five years the working capital will be released for investment elsewhere within the company.
Required:
1. Calculate the annual income tax expense for each of years 1 through 5 that will arise as a result of this investment opportunity.
2. Calculate the net present value of this investment opportunity.
Income Taxes and Net Present Value Analysis
Rosman Company has an opportunity to pursue a capital budgeting project with a five-year time horizon. Alter careful study, Rosman estimated the following costs and revenues for the project:
The new piece of equipment mentioned above has a useful life of five years and zero salvage value. The old piece of equipment mentioned above would be sold at the beginning of the project and there would be no gain or loss realized on its sale. Rosman uses the straight-line depreciation method for financial reporting and tax purposes. The company’s tax rate is 30% and its after-tax cost of capital is 12%. When the project concludes in five years the working capital will be released for investment elsewhere within the company.
Required:
1. Calculate the annual income tax expense for each of years 1 through 5 that will arise as a result of this investment opportunity.
2. Calculate the net present value of this investment opportunity.
Chapter 7C Solutions
MANAGERIAL ACCOUNTING F/MGRS.
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