8. Pace Corporation had a taxable inco Pace Corporation had a taxable income of

Question

8. Pace Corporation had a taxable inco Pace Corporation had a taxable income of $3,000,000 in 2015. What would be the rate and amount of the tax Pace corporation must pay for 2 015? ANSWER ANSWER = 9. Complete the table below for each cash flow estimate. Use Double Declining Ba Depreciation And a Tax Rate of 38% Option A $1000 $220 12 $200 tion B $1200 $200 Cost Net annual benefit Useful life (years Salvage value Before Tax IRR $1100 $210 10 $100 After Tax IRR determination of the Mean Value IRR using linear interpolation on anothe Place your answer in the location identified. 10. Complete the table below for each cash flow estimate. Show all work to

Explanation / Answer

Option A Option B Option C Before Tax IRR 19.98% 14.50% 6.88% After Tax IRR 17.63% 14.95% 11.58% Option A Year Cost Net Annual benefit Net Annual Benefit after tax = Net annual benefit x (1-38%) Tax Shield On dep. Net Cash Flow 0 -$1,000 -1000 1 $220 $136.4 $63.33 $199.73 2 $220 $136.4 $63.33 $199.73 3 $220 $136.4 $63.33 $199.73 4 $220 $136.4 $63.33 $199.73 5 $220 $136.4 $63.33 $199.73 6 $220 $136.4 $63.33 $199.73 7 $220 $136.4 $63.33 $199.73 8 $220 $136.4 $63.33 $199.73 9 $220 $136.4 $63.33 $199.73 10 $220 $136.4 $63.33 $199.73 11 $220 $136.4 $63.33 $199.73 12 $220 $136.4 $63.33 $399.73 Depreciation = $1000/12 * 2 $166.67 Year 12 cash flow is inclusive of salvage value Option A Year Cash Flow before tax cash flow after tax 0 -$1,000 -1000 1 $220 $199.73 2 $220 $199.73 3 $220 $199.73 4 $220 $199.73 5 $220 $199.73 6 $220 $199.73 7 $220 $199.73 8 $220 $199.73 9 $220 $199.73 10 $220 $199.73 11 $220 $199.73 12 $420 $399.73 IRR 19.98% 17.63% Option B Year Cost Net Annual benefit Net Annual Benefit after tax = Net annual benefit x (1-38%) Tax Shield On dep. Net Cash Flow 0 $1,100 -$1,100 1 $210 $130.2 $83.6 $213.8 2 $210 $130.2 $83.6 $213.8 3 $210 $130.2 $83.6 $213.8 4 $210 $130.2 $83.6 $213.8 5 $210 $130.2 $83.6 $213.8 6 $210 $130.2 $83.6 $213.8 7 $210 $130.2 $83.6 $213.8 8 $210 $130.2 $83.6 $213.8 9 $210 $130.2 $83.6 $213.8 10 $210 $130.2 $83.6 $313.8 Depreciation = $1100/10 * 2 $220 Year 12 cash flow is inclusive of salvage value Option B Year Cash Flow before tax cash flow after tax 0 -$1,100 -$1,100.0 1 $210 $213.8 2 $210 $213.8 3 $210 $213.8 4 $210 $213.8 5 $210 $213.8 6 $210 $213.8 7 $210 $213.8 8 $210 $213.8 9 $210 $213.8 10 $310 $313.8 IRR 14.50% 14.95% Option c Year Cost Net Annual benefit Net Annual Benefit after tax = Net annual benefit x (1-38%) Tax Shield On dep. Net Cash Flow 0 $1,200 -$1,200 1 $200 $124 $114 $238 2 $200 $124 $114 $238 3 $200 $124 $114 $238 4 $200 $124 $114 $238 5 $200 $124 $114 $238 6 $200 $124 $114 $238 7 $200 $124 $114 $238 8 $200 $124 $114 $238 Depreciation = $1200/8 * 2 $300 Option C Year Cash Flow before tax cash flow after tax 0 -$1,200 -$1,200.0 1 $200 $238.0 2 $200 $238.0 3 $200 $238.0 4 $200 $238.0 5 $200 $238.0 6 $200 $238.0 7 $200 $238.0 8 $200 $238.0 IRR 6.88% 11.58%

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