Exam 13: Capital Budgeting Decisions

A piece of equipment, acquired in Year 1, belongs to Class 7 with a maximum CCA rate of 15%. The income tax rate is 40%. The tax savings (before discounting) from the CCA tax shield were $2,830.50 for Year 3. The after-tax cost of capital is 10%. -What was the present value of the tax savings from the CCA tax shield in year 3 to the nearest dollar?

Apex Corp. is planning to buy a production machine costing $100,000. This machine's expected useful life is five years, with no residual value. Apex uses a discount rate of 10% and has calculated the following data pertaining to the purchase and operation of this machine: (Ignore income taxes in this problem.) -The net present value of this investment is closest to which of the following?

The following information concerns a proposed investment: Investment Required Annual Savings Life of the Project \ 14,150 \ 2,500 12 years What is the internal rate of return? (Ignore income taxes in this problem.)

The Sawyer Company has $80,000 to invest and is considering two different projects: X and Y. The following data are available on the projects: Both projects will have a useful life of five years; at the end of five years, the working capital will be released for use elsewhere. Sawyer's discount rate is 12%. (Ignore income taxes in this problem.) -The net present value of project Y is closest to which of the following?

Sam Weller is thinking of investing $70,000 to start a bookstore.Sam plans to withdraw $15,000 from the business at the end of each year for the next five years.At the end of the fifth year,Sam plans to sell the business for $110,000 cash.At a 12% discount rate,what is the net present value of the investment? (Ignore income taxes in this problem.)

The internal rate of return for a project is the discount rate that makes the net present value of the project equal to zero.

Which of the following statements is(are)correct? I.Project A is acceptable according to the net present value method. II)Project A has an internal rate of return greater than 14%.

Shields Company has gathered the following data on a proposed investment project: (Ignore income taxes in this problem.) -The net present value on this investment is closest to which of the following?

The net present value method of capital budgeting assumes that cash flows are reinvested at what rate?

A company needs an increase in working capital of $50,000 in a project that will last four years.The company's tax rate is 30%,and its discount rate is 8%.What is the approximate present value of the working capital to be released at the end of the project?

To determine the effect of income taxes on a project,multiply the net present value of the project by one minus the tax rate.

What does the payback method measure?

Which of the following items is NOT included in the formula for calculating the present value of the capital cost allowance (CCA)tax shield?

Last year,the sales at Seidelman Company were $700,000 and were all cash sales.The company's tax-deductible expenses were $450,000 and were all cash expenses.The tax rate was 35%.What was the after-tax net cash inflow at Seidelman last year?

Apex Corp. is planning to buy a production machine costing $100,000. This machine's expected useful life is five years, with no residual value. Apex uses a discount rate of 10% and has calculated the following data pertaining to the purchase and operation of this machine: (Ignore income taxes in this problem.) -What is the payback period for this investment?

The Becker Company is interested in buying a piece of equipment. The following data have been assembled concerning this equipment: This equipment is expected to have a useful life of six years. At the end of the sixth year, the working capital would be released for use elsewhere. The company's discount rate is 10%. (Ignore income taxes in this problem.) -What is the present value of the net cash flows (all cash inflows minus all cash outflows)occurring during year 4?

A company had tax-deductible cash expenses of $650,000 last year,and the tax rate was 30%.What was the after-tax net cash outflow for these expenses?

Alpine Company is analyzing two investment projects: P and Q. The following data are available: The computer equipment for Project P will have a total salvage value of $8,000 at end of eight years. It will belong to Class 10 with a 30% maximum CCA rate. At the end of eight years, the working capital for Project Q will be released for use elsewhere. The income tax rate is 30% and Alpine's after-tax cost of capital is 10%. -What is the approximate present value of the tax savings (for all years)due to the CCA tax shield for Project P?

UR Company is considering rebuilding and selling used alternators for automobiles. The company estimates that the net operating cash flows (sales minus cash operating expenses) arising from the rebuilding and sale of the used alternators would be as follows (numbers in parentheses indicate an outflow): In addition to the above net operating cash flows, UR Company would purchase production equipment costing $200,000 now to use in the rebuilding of the alternators. The equipment would have a 12-year life and a $15,000 salvage value. The company's discount rate is 10%. (Ignore income taxes in this problem.) -What is the net present value of ALL cash flows associated with this investment,rounded to the nearest dollar?

Eureka Company is considering replacing an old computer with a new computer. The following data relate to this investment decision: The new computer will belong to Class 10 with a maximum CCA rate of 30%. The income tax rate is also 30%, and the company's after-tax cost of capital is 12% -What is the present value of the before-tax proceeds that will be received on the sale of the old computer?