Summer Tyme, Inc., isconsidering a new 4-year expansion project that requires an initialfixed asset investment of $3.024 million. The fixed asset will bedepreciated straight-line to zero over its 4-year tax life, afterwhich time it will be worthless. The project is estimated togenerate $2,688,000 in annual sales, with costs of $1,075,200.
Required: If the tax rate is 31 percent,what is the OCF for this project?
$591,192
$1,347,192
$1,612,800
$1,279,832
$1,414,552
| Summer Tyme, Inc., isconsidering a new 4-year expansion project that requires an initialfixed asset investment of $3.024 million. The fixed asset will bedepreciated straight-line to zero over its 4-year tax life, afterwhich time it will be worthless. The project is estimated togenerate $2,688,000 in annual sales, with costs of $1,075,200. |
| Required: |
| If the tax rate is 31 percent,what is the OCF for this project? |
$591,192
$1,347,192
$1,612,800
$1,279,832
$1,414,552
Related questions
Summer Tyme, Inc., is considering a new 3-year expansion projectthat requires an initial fixed asset investment of $1.62 million.The fixed asset will be depreciated straight-line to zero over its3-year tax life, after which time it will be sold for $126,000. Theproject requires an initial investment in net working capital of$180,000, all of which is recovered at the end of the project. Theproject is estimated to generate $1,440,000 in annual sales, withcosts of $576,000. The tax rate is 33 percent and the requiredreturn on the project is 11 percent.
| What is the project's year 0 net cash flow?HINT: This will not include OCF
|
| 1. Summer Tyme,Inc., is considering a new 4-year expansion project that requiresan initial fixed asset investment of $2.808 million. The fixedasset will be depreciated straight-line to zero over its 4-year taxlife, after which time it will be worthless. The project isestimated to generate $2,496,000 in annual sales, with total costsof $998,400. |
| Required: | |||||
| If the tax rate is 35 percent, what is the OCF for thisproject? 2. An asset used in a 4-year project falls in the 5-year MACRSclass (MACRS Table) for tax purposes. The asset has an acquisitioncost of $14,580,000 and will be sold for $3,240,000 at the end ofthe project.
|
Megan Inc. has a policy of not accepting any investment proposalthat requires more than three ears to payback. The company isconsidering the purchase of new drafting equipment for
$708,000. The equipment has an estimated useful life of sevenyears. Megan will use straight-line depreciation for this asset,with no salvage value. Megan's income tax rate is approximately25%.
Required: Determine the required before-taxsavings for the drafting equipment to meet the
company's payback requirement.
Total required saving in annual after tax cash inflow | $236,000 | |
Annual depreciation | $101,143 | |
Tax rate | 25% | |
Annual tax saving from depreciation | $25,286 | |
Required savings in annual after tax operating costs | $210,714 | |
1-tax rate | 75% | |
Required savings in annual before tax cash operating cost | $280,952 |
Note: Calculations have been rounded off to nearest cents
