Quizzes-Managerial Finance XLS Group 88 Fal Updates a Do you wa Finance X GALILE

Question

Quizzes-Managerial Finance XLS Group 88 Fal Updates a Do you wa Finance X GALILEO1 Locker Logged in as landers ashleigh 1 11/5/2017HE STATE ERSITY Managerial Finance XLS Group B8 Fall Semester 2017 CO Discussions Assignments Quizzes V Grades Groups Rubrics Self Assessments 1 Classlist Quiz 12- Capital Budgeting CF Quiz shleigh Landers: Attempt 1 Question 3 (10 points) a new 6-year expansion project that requires an initial fixed asset investment of $5.994 million. Gone Home, Inc. is considering The fixed asset will be depreciated straight-line to zero over its 6-year tax life, after which time it will be worthless. The project is estimated to generate s5,300,000 in annual sales, with costs of $2,200,000. The tax rate is 31 percent. What is the operating cash flow for this project? $1,993,333 O$2,567,800 $2,241,682 $2,448,690 $2,699,407 Save Question 4 (10 points) will require $500,000 for new fixed assets, $220,000 for additional Hollister & Hollister is considering a new project. The project inventory, and $40,000 for additional accounts receivable. Short-term has a 6-year life. The f the project, the fixed assets can be sold for 20 percent at the end of the project. The project is expected to 34 percent and the required rate of return is 14 percent assets at the end of this project? debt is expected to increase by $200,000. The project fixed assets will be depreciated straight-ine to a zero book value over the ife of the project. At the end of of their original cost. The net working capital returns to its original level generate annual sales of $900,000 and costs of $650,000. The tax rate is What is the amount of the aftertax cash flow from the sale of the fixed $87,500

Explanation / Answer

Question - 3

2448690.................Option - D is correct answer

Question - 4

Here we have a very specific ...........concept being asked. I.e what is after tax cash flow from sale of asset.. So most of the information in the question is irrelevant for this purpose.

Sale value of the asset = 20% of its original cost = 20% of 500,000 = 100,000

As the asset is already depreciated to its zero salvage value, the total of 100,000 shall be profit and as such, is taxable @ 34 %

After tax cash flow from sale of old asset = 100000 - 34000 = 66000............final answer

Sales 5,300,000 (-) Costs 2,200,000 Gross profit 3,100,000 (-) Depreciation 5994000/6 years 999000 EBT 2,101,000 (-) Tax 651310 EAT 1,449,690 (+) Depreciation 999000 Operating CF 2,448,690

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