Answer the following questions and put calculations: 13. In terms of the capital
ID: 2802302 • Letter: A
Question
Answer the following questions and put calculations:
13. In terms of the capital budgeting process, net cash flows are
a)the net cash outlays required to place a project in service
b)the funds invested in additional assets
c)incremental changes in a firm's cash flow
d)the outlays that have already been made
14. The following data is associated with a proposed replacement project:
A machine that originally cost $25,000 and was depreciated on a straight line basis has one year of its expected 5-year life remaining. Its current market value is $12,000. The corporate tax rate is 34%. The cash flow from disposing of the old machine is:
a)$12,000
b)$9,620
c)($ 9,620)
d)$14,380
15. What is the after-tax cash flow that results from the sale for $150,000 of a capital asset that has a book value of $200,000, given a 40% tax rate?
a)$150,000
b)$130,000
c)$90,000
d)$170,000
e)$120,000
16. Shunt Technology will spend $800,000 on a piece of equipment that will manufacture fine wire for the electronics industries. The shipping and installation charges will be $240,000 and net working capital will increase $48,000. The equipment will replace an existing machine that has a salvage value of $75,000 and a book value of $125,000. If Shunt has a current marginal tax rate of 34 percent, what is the net investment?
a)$1,030,000
b)$1,163,000
c)$1,033,000
d)$996,000
Explanation / Answer
13) c is correct. Net cash flows are incremental cash flows from the project.
14) b is correct. Cash Flow = (Market Price - Book Value) x -Tax Rate + Market Price = (12,000 - 5,000) x -34% + 12,000 = 9,620
15) d is correct. Cash Flow = (150,000 - 200,000) x -40% + 150,000 = 170,000
16) d is correct. Net Investment = 800,000 + 240,000 + 48,000 - (75,000 - 125,000) x (-34%) - 75,000 = $996,000
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