25) A consultancy calculates that it S120,000 per year for five years. There can

Question

25) A consultancy calculates that it S120,000 per year for five years. There can supply crade oil assaying services to a small oil producer for 25) are some upfront costs the consultancy will require the oil supply producer to absorb. What is the maximum that these upfront costs could be, if the equivalernt annual annuity to the oil company is to be under $150,000, given that the cost of capital is A) S124,365 B) $30,000 C) S108,143 D) S150,000 26) A company buys tracking software for its warchouse which, along with the computer system will be deducted over five years. It is ancillaries to run it, will cost $1.3 million. This purchase e and 26) the software will reduce inventory by $10.7 million at the end of the first year after it is installed, though there will be an annual cost of $120,000 per year to run the company's marginal tax rate is 40%, how will the purchase of this item change the company's free cash flows in the first year? A) $9.659 million B) $10.732 millionC D) S11.805 million $10.440 million 2T, A firm is considering a new project that will generate cash revenue of $1,700,000 and cash expenses 27) of $675,000 per year for five years. The equipment necessary for the project will cost $275,000 and will be depreciated straight line over four years. What is the expected free cash flow in the second year of the project ifthe firm's marginal tax rate is 40%? B) 5578.250 C) 5573,75o D) $642 500 A) $771,000 28) . Year Year1 Year2 Year 3 Year 4 Years MACRS Depreciatina Rate 20.00% 32,00% 19.20% 11.52% 1152% 5.70% $37,000 in a light delivery truck. This was depreciated using the five-year le shown above. If the company sold it immediately after the end of year 2 for A bakery invests MACRS schedu $25,000, what would be the after-tax cash flow from the sale of this asset, given a tax rate of 40%? B) $10,636 C) $19.262 D) $14,344 A) S5738 ion generated free cash flow of $86 million this year. For the next two years, the 29) company's free cash flow is expected company's-expected to level ofTto the industry long-term growth rate or 4% per year. If the 29) Gonzales Corporati o grow at a rate of9%. After that time, the company's free e cost of capital is 10% and Gonzales Corporation has cash of S90 million, debt of and 100 million shares outstanding, what is Gonzales Corporation's expected current million, $250 price? A) $14.00 B) $14.73 C) $1694 D) $19.15 Services Incorporated(THS) is considering a project that involves setting up 30 o Tempory housing facility in an area recently damaged by a hurricane. THSI will lease space in tempor to various agencies and groups providing relief services to the area. THSI estimates faen oroject will initially cost $S million to set up and will generate $22 million in revenues that th ats first and only year in operation (paid in one year). Operating expenses are expected to durins million during this year and depreciation expense will be another $2 million. THSI will to no working capital for this investment THS's marginal tax rate is 35% ev ne that THSSost of capital for this prject is 15%. The net present value of this ASporary housing project is closest to A) B) $4,652,174 C) $9,304,348 D)-$4,652,174

Explanation / Answer

As per rules I am answering the first 4 sub-parts of this question

25. C: 108143

(=PV(12%,5,30000) where 30000 is 150000-120000)

26. B 10.732 million

(Change in workimg capital - Post tax annual cost + Tax saving on depreciation

= 10.7 - 0.12*60% + 40%*1.3/5 )

27. D 642500

28. C 19262

Gain on sale = (25000- (37000-20%*37000- 32%*37000-19.2%*37000) = 14344

Tax on capital gain = 14344*40% = 5737.6

Cash flow on sale = 25000- 5737.6 = 19262

Revenue 1700000 Expenses 675000 Depreciation= 275000/4 68750 PBT 956250 Tax @ 40% 382500 PAT 573750 Add back depreciation 68750 FCF 642500

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