2. Shado, Incorporated, is considering an investment of $449,000 in an asset with aneconomic life of five years. The firm estimates that the nominal annual cash revenuesand expenses at the end of the first year will be $287,600 and $89,800, respectively.Both revenues and expenses will grow thereafter at the annual inflation rate of 3percent. The company will use the straight-line method to depreciate its asset to zeroover five years. The salvage value of the asset is estimated to be $69,000 in nominalterms at that time. The one-time net working capital investment of $22,000 is requiredimmediately and will be recovered at the end of the project. The corporate tax rate is 24percent. What is the project's total nominal cash flow from assets for each year? (Anegative amount should be indicated by a minus sign. Do not round intermediatecalculations and round your answers to the nearest whole number, e.g., 32.)Year 0Year 1Year 2Year 3Year 4Year 5

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Answered: Shado, Incorporated, is considering an…

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 2CE

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Shado, Incorporated, is considering an investment of $451,000 in an asset with an economic life of five years. The firm estimates that the nominal annual cash revenues and expenses at the end of the first year will be $289,400 and $90,200, respectively. Both revenues and expenses will grow thereafter at the annual inflation rate of 5 percent. The company will use the straight-line method to depreciate its asset to zero over five years. The salvage value of the asset is estimated to be $71,000 in nominal terms at that time. The one-time net working capital investment of $23,000 is required immediately and will be recovered at the end of the project. The corporate tax rate is 21 percent. What is the project’s total nominal cash flow from assets for each year?
Shado, Incorporated, is considering an investment of $446, 000 in an asset with an economic life of five years. The firm estimates that the nominal annual cash revenues and expenses at the end of the first year will be $284, 900 and $89, 200, respectively. Both revenues and expenses will grow thereafter at the annual inflation rate of 4 percent. The company will use the straight-line method to depreciate its asset to zero over five years. The salvage value of the asset is estimated to be $66,000 in nominal terms at that time. The one - time net working capital investment of $20, 500 is required immediately and will be recovered at the end of the project. The corporate tax rate is 21 percent. What is the project's total nominal cash flow from assets for each year? (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.)
Shado, Incorporated, is considering an investment of $442,000 in an asset with an economic life of five years. The firm estimates that the nominal annual cash revenues and expenses at the end of the first year will be $281,300 and $88,400, respectively. Both revenues and expenses will grow thereafter at the annual inflation rate of 4 percent. The company will use the straight-line method to depreciate its asset to zero over five years. The salvage value of the asset is estimated to be $62,000 in nominal terms at that time. The one-time net working capital investment of $18,500 is required immediately and will be recovered at the end of the project. The corporate tax rate is 22 percent. What is the project’s total nominal cash flow from assets for each year? (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) Year 0$-460,500selected answer correctYear 1$167,182selected…
Perkins, Inc., is considering an investment of $378,000 in an asset with an economic life of 5 years. The firm estimates that the nominal annual cash revenues and expenses at the end of the first year will be $258,000 and $83,000, respectively. Both revenues and expenses will grow thereafter at the annual inflation rate of 2 percent. The company will use the straight-line method to depreciate its asset to zero over five years. The salvage value of the asset is estimated to be $58,000 in nominal terms at that time. The one-time net working capital investment of $16,500 is required immediately and will be recovered at the end of the project. The tax rate is 23 percent. What is the project's total nominal cash flow from assets for each year? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to the nearest whole dollar, e.g., 32.) Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 $ $ $ 6A6A $ $ $ Cash Flow -394,500 149,470 152,165…
Perkins, Inc., is considering an investment of $379,000 in an asset with an economic life of 5 years. The firm estimates that the nominal annual cash revenues and expenses at the end of the first year will be $259,000 and $84,000, respectively. Both revenues and expenses will grow thereafter at the annual inflation rate of 4 percent. The company will use the straight-line method to depreciate its asset to zero over five years. The salvage value of the asset is estimated to be $59,000 in nominal terms at that time. The one-time net working capital investment of $17,000 is required immediately and will be recovered at the end of the project. The tax rate is 24 percent. What is the project’s total nominal cash flow from assets for each year? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to the nearest whole dollar, e.g., 32.)
LO, Inc., is considering an investment of $440,000 in an asset with an economic life of five years. The firm estimates that the nominal annual cash revenues and expenses at the end of the first year will be $279,500 and $88,000, respectively. Both revenues and expenses will grow thereafter at the annual inflation rate of 2 percent. The company will use the straight-line method to depreciate its asset to zero over five years. The salvage value of the asset is estimated to be $60,000 in nominal terms at that time. The one-time net working capital investment of $17,500 is required immediately and will be recovered at the end of the project. The corporate tax rate is 25 percent. What is the project's total nominal cash flow from assets for each year? (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Cash flow
Kurty Limited is considering an investment in a fixed asset which costs $378,000. The asset is expected to generate cash inflows of $108,000 each year for the next four years. The company intends to sell the asset at the end of year 4 for an estimated residual value of $26,000. The asset will be depreciated straight-line over the next four years. The discount rate for the project is 15%. Calculate the net present value.
NUBD Co. is planning to purchase a new machine which it will depreciate, for book purposes, on a straight-line basis over a 10 year period with no salvage value and a full year’s depreciation taken in the year of acquisition. The new machine is expected to produce cash flows from operations, net of income taxes, of P66,000 a year in each of the next ten years. The accounting rate of return on the initial investment is expected to be 12%. How much will the new machine cost?
Prescott Corporation is considering an investment in new equipment costing $912,000. The equipment will be depreciated on a straight-line basis over a ten-year life and is expected to have a residual value of $92,000. The equipment is expected to generate net cash inflows of $140,000 for each of the first five years and $100,000 for each of the last five years. What is the accounting rate of return associated with the equipment investment? (Round your answer to two decimal places.) OA. 8.59% OB. 8.66% OC. 8.99% OD. 7.57% C
The Bread Company is planning to purchase a new machine that it will depreciate on straight-line basis over a ten year period. A full year's depreciation will be taken in the year of acquisition. The machine is expected to produce cash flow, net of income taxes, of P30,000 in each of the ten years. The accounting (book value) rate of return is expected-to be 10% on the initial increase in required investment. The cost of the new machine will be
DataPoint Engineering is considering the purchase of a new piece of equipment for $200,000. It has an eight-year midpoint of its asset depreciation range (ADR). It will require an additional initial investment of $100,000 in nondepreciable working capital. $25,000 of this investment will be recovered after the sixth year and will provide additional cash flow for that year. Income before depreciation and taxes for the next six are shown in the following table. Use Table 12–11, Table 12–12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Need help with subpart D-1, previously asked question and was a-c were answered. Year Amount 1 $ 173,000 2 152,000 3 108,000 4 103,000 5 89,000 6 71,000 The tax rate is 25 percent. The cost of capital must be computed based on the following: Cost(aftertax) Weights Debt Kd 5.50 % 30 % Preferred stock Kp 9.20 10…
DataPoint Engineering is considering the purchase of a new piece of equipment for $310,000. It has an eight-year midpoint of its asset depreciation range (ADR). It will require an additional initial investment of $130,000 in nondepreciable working capital. $52,000 of this investment will be recovered after the sixth year and will provide additional cash flow for that year. Income before depreciation and taxes for the next six are shown in the following table. Use Table 12–11, Table 12-12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Year Amount $206,000 174,000 144,000 129,000 102,000 92,000 123456 The tax rate is 25 percent. The cost of capital must be computed based on the following: Debt Preferred stock Common equity (retained earnings) Year 1 2 3 4 5 6 Kd Kp Ke Depreciation Base a. Determine the annual depreciation schedule. (Do not round intermediate calculations. Round your depreciation base and…

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