The Shell Corporation has a 34% tax rate and owns a piece of petroleum-drilling equipment that costs $119,000 and will be depreciated at a CCA rate of 30%. Shell will lease the equipment to others and each year receive $33,100 in rent. At the end of five years, the firm will sell the equipment for $31,600. All values are presented in today's dollars. Calculate the overall present worth of these cash flows with tax effects if market interest rate is 10% and annual inflation rate is 2%. (Note: Don't use the $ sign in your answer and round it up to 2 decimal places)

The Shell Corporation has a 34% tax rate and owns a piece of petroleum-drilling equipment that costs $119,000 and will be depreciated at a CCA rate of 30%. Shell will lease the equipment to others and each year receive $33,100 in rent. At the end of five years, the firm will sell the equipment for $31,600. All values are presented in today's dollars. Calculate the overall present worth of these cash flows with tax effects if market interest rate is 10% and annual inflation rate is 2%. (Note: Don't use the $ sign in your answer and round it up to 2 decimal places)

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 22E

See similar textbooks

Similar questions

Your firm purchased machinery for $9.5 million and received immediate 100% bonus depreciation. The project will end after 5 years. If the equipment can be sold for $4.0 million at the completion of the project, and your firm's tax rate is 21%, what is the after-tax cash flow from the sale of the machinery? Note: Enter your answer in millions rounded to 4 decimal places. After-tax cash flow millions
Baird Bros. Construction is considering the purchase of a machine at a cost of $202,000. The machine is expected to generate cash flows of $37,000 per year for 10 years and can be sold at the end of 10 years for $27,000. Interest is at 11%. Assume the machine purchase would be paid for on the first day of year one, but that all other cash flows occur at the end of the year. Ignore income tax considerations. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required:a. What is the net present value of the cash flows?b. Determine whether Baird should purchase the machine.
Suppose an asset has a purchase cost of $15,000, a life of five years, a salvage value of $3,000 at the end of five years, and a net annual before-tax revenue of $7,500. The firm's marginal tax rate is 35%. The asset will be depreciated by five-year MACRS.(a) Determine the cash flow after taxes, assuming that the purchase cost will be entirely financed by the equity funds.(b) Rework part (a), assuming that the entire investment would be financed by a bank loan at an interest rate of 9%.(c) Given a choice between paying the purchase cost up front from the firm's equity and using the financing method of part (b), show calculations to justify which is the better choice at an interest rate of 9%.
The Wet Corporation has an investment project that will reduce expenses by $30,000 per year for 3 years. The project's cost is $35,000. If the asset is part of the 3-year MACRS category (33.33% first year depreciation) and the company's combined tax rate is 27%, what is the cash flow from the project in year 17 Note: Do not round intermediate calculations. Round your answer to the nearest dollar amount. Multiple Choice $24,500 $25,830 $25,050 $26.510
The Wet Corporation has an investment project that will reduce expenses by $30,000 per year for 3 years. The project's cost is $30,000. If the asset is part of the 3 year MACRS category (33.33% first year depreciation) and the company's combined tax rate is 29%, what is the cash flow from the project in year 1? Note: Do not round intermediate calculations. Round your answer to the nearest dollar amount. Multiple Choice $23,650 $24.980 $24.200 $25,660
The Wet Corporation has an investment project that will reduce expenses by $20,000 per year for 3 years. The project's cost is $25,000. If the asset is part of the 3-year MACRS category (33.33% first year depreciation) and the company's combined tax rate is 35%, what is the cash flow from the project in year 1 ?
What is the expected after-tax cash flow from selling a piece of equipment if TwoPlus purchases the equipment today for $143,000.00, the tax rate is 23.00 percent, the equipment is sold in 2 years for $36,500.00, and MACRS depreciation is used where the depreciation rates in years 1, 2, 3, 4, and 5 are 20%, 32%, 19%, 12%, and 10%, respectively? O $17,102.80 (plus or minus $10) $37,643.10 (plus or minus $10) $50,470.20 (plus or minus $10) $43,892.20 (plus or minus $10) None of the above is within $10 of the correct answer
The Shakey Company can finance the purchase of a new building costing $2 million with a bond issue, for which it would pay $100,000 interest per year, and then repay the $2 million at the end of the life of the building. Instead of buying in this manner, the company can lease the building by paying $125,000 per year, the first payment being due one year from now. The building would be fully depreciated for tax purposes over an expected life of 20 years. The income tax rate is 40% for all expenses and capital gains or losses, and the firm’s after-tax MARR is 5%. Use AW analysis basedon equity (nonborrowed) capital to determine whether the firm should borrow and buy or lease if, at the end of 20 years, the building has the following market values for the owner: (a) nothing, (b) $500,000. Straight-line depreciation will be used but is allowable only if the company purchases the building.
The Shakey Company can finance the purchase of a new building costing $2 million with a bond issue, for which it would pay S90,000 interest per year, and then repay the $2 million at the end of the life of the building. Instead of buying in this manner, the company can lease the building by paying $135,000 per year, the first payment being due one year from now. The building would be fully depreciated for tax purposes over an expected life of 20 years. The income tax rate is 40% for all expenses and capital gains or losses, and the firm's after-tax MARR is 6%. Use AW analysis based on equity (nonborrowed) capital to determine whether the firm should borrow and buy or lease if, at the end of 20 years, the building has the following market values for the owner: (a) nothing, (b) S500,000. Straight-line depreciation will be used but is allowable only if the company purchases the building.
NUBD Co. purchase a machine for P180,000, which will be depreciated on the straight-line basis over a five year period with no salvage value. The related cash flow from operations, net of income taxes, is expected to be P45,000, a year. Assume that NUBD’s effective income tax rate is 40% for all years.What is the accounting rate of return on the initial increase in required investment?
Eskom, Inc. has 4-year project in South Africa with an annual operating cash flow of $47,500. Eskom spent $21,600 on an Electricity Supply Solar Tower to start the project. At the end of the project, the Electricity Supply Solar Tower will have a book value of $4,340, but can be salvaged for $5,430. If Eskom’s tax rate is 35%, what is the cash flow in Year 4? Note: Net working capital of $3,850 was needed at the start of the project. That money will be recovered at the end of the project. a. $48,699 b.$57,162 c. $54,880 d. $56,399 e. $18,392
Precision Ltd is considering an equipment that costs $176,000, and is depreciated on a straight-line basis to zero over its 11-year useful life. The equipment is expected to be used in a 7- year project. Precision Ltd believe that at the end of the project (i.e. year 7), the company can sell the equipment for $22,000. If the tax rate is 30%, what is the net cash flow from the sale of this equipment in year 7?