Skowyra Corporation has provided the following information concerning a capital budgeting project: Investment required in equipment$540,000 Working capital requirement$30,000 Net annual operating cash inflow$270,000 One-time renovation expense in year 2$70,000 The expected life of the project and the equipment is 3 years and the equipment has zero salvage value. The working capital would be required immediately and would be released for use elsewhere at the end of the project. The company uses straight-line depreciation on all equipment and the depreciation expense on the equipment would be $180,000 per year. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. The income tax
rate is 30%. The after-tax discount rate is 7%. The net annual operating cash inflow is the difference between the incremental sales revenue and incremental cash operating expenses. Required:Determine the net present value of the project. Show your work!
What will be an ideal response?
| Year |
| ? | Now | 1 | 2 | 3 |
| Calculate the annual tax expense: | ? | ? | ? | ? |
| Net annual op. cash inflow | ? | $270,000 | $270,000 | $270,000 |
| One-time expense | ? | ? | $(70,000) | ? |
| Depreciation expense | ? | $(180,000) | $(180,000) | $(180,000) |
| Incremental net income | ? | $90,000 | $20,000 | $90,000 |
| Tax rate | ? | 30% | 30% | 30% |
| Income tax expense | ? | $(27,000) | $(6,000) | $(27,000) |
| ? | ? | ? | ? | ? |
| Calculate the net present value: | ? | ? | ? | ? |
| Purchase of equipment | $(540,000) | ? | ? | ? |
| Working capital | $(30,000) | ? | ? | $30,000 |
| Net annual op. cash inflow | ? | $270,000 | $270,000 | $270,000 |
| One-time expense | ? | ? | $(70,000) | ? |
| Income tax expense | $(27,000) | $(6,000) | $(27,000) | |
| Total cash flows | $(570,000) | $243,000 | $194,000 | $273,000 |
| Discount factor (7%) | 1.000 | 0.935 | 0.873 | 0.816 |
| Present value of cash flows | $(570,000) | $227,205 | $169,362 | $222,768 |
| Net present value | $49,335 | ? | ? | ? |
You might also like to view...
In the ATM model, if the probability of loss or theft decreases, then
A. the number of days between visits to the ATM rises and the quantity of money demanded falls. B. the number of days between visits to the ATM falls and the quantity of money demanded rises. C. both the number of days between visits to the ATM and the quantity of money demanded rises. D. both the number of days between visits to the ATM and the quantity of money demanded falls.
During the 2004 Super Bowl broadcast, PepsiCo launched a joint promotion with Apple's iTunes Music Store. Anyone purchasing a bottle of Pepsi had a one-in-three chance of being a winner
However, many people discovered that by tilting the bottles, they could tell whether the bottle was a winner. Indicate whether the statement is true or false
How long should you wait before following up on a résumé submission?c
A) One to two weeks after the close date B) Before the close date C) Only when invited to do so by the organization D) After the second submission of a résumé E) On the close date
Trade symbols would include which of the following?
a. Service mark. b. Certification mark. c. Collective mark. d. All of these.