Deck 20: Income Taxes and the Net Present Value Method

Question 1

In net present value analysis, the release of working capital at the end of a project should be:

A) ignored.
B) included as a cash outflow.
C) included as a cash inflow.
D) included as a tax deduction.

Answer 1

C

Question 2

Mester Corporation has provided the following information concerning a capital budgeting project: The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
Use Exhibit 7B-1 to determine the appropriate discount factor(s) using table.
The net present value of the project is closest to:

A) $65,640
B) $119,000
C) $171,822
D) $51,822

Answer 2

D
Explanation: Depreciation expense = (Original cost - Salvage value) ÷ Useful life
= ($120,000 - $0) ÷ 4 years = $30,000 per year

Question 3

All cash inflows are taxable.

Answer 3

False

Question 4

Nakama Corporation is considering investing in a project that would have a 4 year expected useful life. The company would need to invest $280,000 in equipment that will have zero salvage value at the end of the project. Annual incremental sales would be $640,000 and annual cash operating expenses would be $480,000. In year 3 the company would have to incur one-time renovation expenses of $50,000. Working capital in the amount of $20,000 would be required. The working capital would be released for use elsewhere at the end of the project. The company uses straight-line depreciation on all equipment. The company's tax rate is 30%. The income tax expense in year 2:

A) $48,000
B) $12,000
C) $14,500
D) $27,000

Question 5

A company anticipates incremental net income (i.e., incremental taxable income) of $20,000 in year 3 of a project. The company's tax rate is 30% and its after-tax discount rate is 8%. Use Exhibit 7B-1 to determine the appropriate discount factor(s) using table.
The present value of this future cash flow is closest to:

A) $6,000
B) $4,763
C) $14,000
D) $11,116

Question 6

When a company invests in equipment, it is not ordinarily allowed to immediately expense the entire cost of the equipment when computing taxable income.

Question 7

Last year the sales at Summit Corporation were $400,000 and were all cash sales. The expenses at Summit were $250,000 and were all cash expenses. The tax rate was 30%. The after-tax net cash inflow at Summit last year was:

A) $150,000
B) $45,000
C) $105,000
D) $400,000

Question 8

In net present value analysis, an investment in equipment at the beginning of a project should be:

A) ignored.
B) included as a cash outflow.
C) included as a cash inflow.
D) included as a tax deduction.

Question 9

Depreciation expense is not included in the computation of incremental net income when determining the income tax expense associated with a capital budgeting project.

Question 10

A capital budgeting project's incremental net income computation for purposes of determining incremental tax expense includes investments in working capital.

Question 11

Rhoads Corporation is considering a capital budgeting project that would require an investment of $160,000 in equipment with a 4-year expected life and zero salvage value. Annual incremental sales will be $460,000 and annual incremental cash operating expenses will be $330,000. The company's income tax rate is 30% and the after-tax discount rate is 15%. The company uses straight-line depreciation on all equipment; the annual depreciation expense will be $40,000. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. Use Exhibit 7B-1 to determine the appropriate discount factor(s) using table.
The net present value of the project is closest to:

A) $178,252
B) $252,000
C) $97,040
D) $134,168

Question 12

Coffie Corporation has provided the following information concerning a capital budgeting project: The company uses straight-line depreciation on all equipment.
The total cash flow net of income taxes in year 2 is:

A) $90,000
B) $75,000
C) $130,000
D) $103,000

Question 13

A company needs an increase in working capital of $50,000 in a project that will last 4 years. The company's tax rate is 30% and its after-tax discount rate is 8%. Use Exhibit 7B-1 to determine the appropriate discount factor(s) using table.
The present value of the release of the working capital at the end of the project is closest to:

A) $36,750
B) $15,000
C) $25,726
D) $35,000

Question 14

The following information concerning a proposed capital budgeting project has been provided by Jochum Corporation: The expected life of the project is 4 years. The income tax rate is 30%. The after-tax discount rate is 9%. The company uses straight-line depreciation on all equipment and the annual depreciation expense would be $70,000. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
Use Exhibit 7B-1 to determine the appropriate discount factor(s) using table.
The net present value of the project is closest to:

A) $176,900
B) $182,000
C) $84,770
D) $92,770

Question 15

A capital budgeting project's incremental net income computation for purposes of determining incremental tax expense includes immediate cash outflows for initial investments in equipment.

Question 16

Coache Corporation is considering a capital budgeting project that would require an investment of $120,000 in equipment with a 4 year useful life and zero salvage value. The annual incremental sales would be $310,000 and the annual incremental cash operating expenses would be $230,000. In addition, there would be a one-time renovation expense in year 3 of $30,000. The company's income tax rate is 30%. The company uses straight-line depreciation on all equipment. The total cash flow net of income taxes in year 3 is:

A) $44,000
B) $35,000
C) $65,000
D) $50,000

Question 17

Under the simplifying assumptions made in the text, to calculate the amount of income tax expense associated with an investment project, first calculate the incremental net cash inflow during each year of the project and then multiply each year's incremental net cash inflow by the tax rate.

Question 18

The investment in working capital at the start of an investment project can be deducted from revenues when computing taxable income.

Question 19

Fontana Corporation is considering a capital budgeting project that would require investing $240,000 in equipment with an expected life of 4 years and zero salvage value. The annual incremental sales would be $640,000 and the annual incremental cash operating expenses would be $440,000. The company's income tax rate is 30%. The company uses straight-line depreciation on all equipment. The total cash flow net of income taxes in year 2 is:

A) $158,000
B) $200,000
C) $88,000
D) $140,000

Question 20

Income taxes have no effect on whether a capital budgeting project should or should not be accepted in a for-profit company.

Question 21

Truskowski Corporation has provided the following information concerning a capital budgeting project: The company uses straight-line depreciation on all equipment; the annual depreciation expense will be $60,000. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
Use Exhibit 7B-1 to determine the appropriate discount factor(s) using table.
The net present value of the project is closest to:

A) $280,000
B) $386,620
C) $235,840
D) $146,620

Question 22

Infante Corporation has provided the following information concerning a capital budgeting project: The company uses straight-line depreciation on all equipment.
The total cash flow net of income taxes in year 2 is:

A) $78,000
B) $63,000
C) $92,000
D) $42,000

Question 23

Halwick Corporation is considering a capital budgeting project that would have a useful life of 4 years and would involve investing $120,000 in equipment that would have zero salvage value at the end of the project. Annual incremental sales would be $360,000 and annual cash operating expenses would be $280,000. The company uses straight-line depreciation on all equipment. Its income tax rate is 30%. The income tax expense in year 2 is:

A) $6,000
B) $9,000
C) $15,000
D) $24,000

Question 24

Schweinsberg Corporation is considering a capital budgeting project. The project would require an investment of $120,000 in equipment with a 4 year expected life and zero salvage value. The company uses straight-line depreciation and the annual depreciation expense will be $30,000. Annual incremental sales would be $230,000 and annual incremental cash operating expenses would be $180,000. The company's income tax rate is 30% and the after-tax discount rate is 15%. The company takes income taxes into account in its capital budgeting. Assume cash flows occur at the end of the year except for the initial investments. Use Exhibit 7B-1 to determine the appropriate discount factor(s) using table.
The net present value of the project is closest to:

A) $22,800
B) $125,664
C) $56,000
D) $5,664

Question 25

Mcelveen Corporation has provided the following information concerning a capital budgeting project: The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
Use Exhibit 7B-1 to determine the appropriate discount factor(s) using table.
The net present value of the project is closest to:

A) $60,960
B) $21,934
C) $84,000
D) $34,194

Question 26

Antinoro Corporation has provided the following information concerning a capital budgeting project: The company uses straight-line depreciation on all equipment.
The income tax expense in year 2 is:

A) $3,000
B) $18,000
C) $36,000
D) $21,000

Question 27

Bonomo Corporation has provided the following information concerning a capital budgeting project: The company uses straight-line depreciation on all equipment.
The income tax expense in year 3 is:

A) $24,000
B) $15,000
C) $36,000
D) $9,000

Question 28

Colantro Corporation has provided the following information concerning a capital budgeting project: The company uses straight-line depreciation on all equipment.
The income tax expense in year 2 is:

A) $30,000
B) $3,000
C) $9,000
D) $12,000

Question 29

Barbera Corporation has provided the following information concerning a capital budgeting project: The company uses straight-line depreciation on all equipment.
The total cash flow net of income taxes in year 3 is:

A) $77,000
B) $104,000
C) $71,000
D) $80,000

Question 30

Maurer Corporation is considering a capital budgeting project that would involve investing $200,000 in equipment with an estimated useful life of 4 years and no salvage value at the end of the useful life. Annual incremental sales from the project would be $550,000 and the annual incremental cash operating expenses would be $440,000. A one-time renovation expense of $40,000 would be required in year 3. The company's income tax rate is 30%. The company uses straight-line depreciation on all equipment.
The income tax expense in year 3 is:

A) $6,000
B) $33,000
C) $18,000
D) $21,000

Question 31

Lennox Corporation has provided the following information concerning a capital budgeting project: The company's tax rate is 30%. The company's after-tax discount rate is 8%. The project would require an investment of $20,000 at the beginning of the project. This working capital would be released for use elsewhere at the end of the project. The company uses straight-line depreciation on all equipment.
The total cash flow net of income taxes in year 2 is:

A) $30,000
B) $26,000
C) $41,000
D) $50,000

Question 32

Inocencio Corporation has provided the following information concerning a capital budgeting project: The company uses straight-line depreciation on all equipment.
The total cash flow net of income taxes in year 3 is:

A) $35,000
B) $95,000
C) $165,000
D) $110,000

Question 33

Stepnoski Corporation is considering a capital budgeting project that would involve investing $280,000 in equipment with an estimated useful life of 4 years and no salvage value at the end of the useful life. Annual incremental sales from the project would be $610,000 and the annual incremental cash operating expenses would be $490,000. A one-time renovation expense of $20,000 would be required in year 3. The project would require investing $30,000 of working capital in the project immediately, but this amount would be recovered at the end of the project in 4 years. The company's income tax rate is 30% and its after-tax discount rate is 11%. The company uses straight-line depreciation on all equipment.
The income tax expense in year 3 is:

A) $15,000
B) $9,000
C) $7,000
D) $36,000

Question 34

Stockinger Corporation has provided the following information concerning a capital budgeting project: The company's income tax rate is 30% and its after-tax discount rate is 11%. The working capital would be required immediately and would be released for use elsewhere at the end of the project. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
The total cash flow net of income taxes in year 3 is:

A) $77,000
B) $80,000
C) $48,000
D) $128,000

Question 35

Marasco Corporation has provided the following information concerning a capital budgeting project: The income tax rate is 30%. The after-tax discount rate is 13%. The company uses straight-line depreciation on all equipment; the annual depreciation expense will be $20,000. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
Use Exhibit 7B-1 to determine the appropriate discount factor(s) using table.
The net present value of the project is closest to:

A) $91,000
B) $128,199
C) $77,650
D) $48,199

Question 36

Bratton Corporation has provided the following information concerning a capital budgeting project: The company uses straight-line depreciation on all equipment; the annual depreciation expense will be $40,000. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
Use Exhibit 7B-1 to determine the appropriate discount factor(s) using table.
The net present value of the project is closest to:

A) $104,686
B) $196,000
C) $154,000
D) $75,580

Question 37

Dobrinski Corporation has provided the following information concerning a capital budgeting project: The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
Use Exhibit 7B-1 to determine the appropriate discount factor(s) using table.
The net present value of the project is closest to:

A) $144,210
B) $210,000
C) $77,709
D) $59,949

Question 38

Eison Corporation has provided the following information concerning a capital budgeting project: The company uses straight-line depreciation on all equipment.
The income tax expense in year 3 is:

A) $21,000
B) $42,000
C) $15,000
D) $6,000

Question 39

Chene Corporation has provided the following information concerning a capital budgeting project: The equipment will have a 4 year expected life and zero salvage value. The company's income tax rate is 30%, and the after-tax discount rate is 10%. The company uses straight-line depreciation on all equipment; the annual depreciation expense will be $50,000. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
Use Exhibit 7B-1 to determine the appropriate discount factor(s) using table.
The net present value of the project is closest to:

A) $335,914
B) $224,000
C) $169,516
D) $135,914

Question 40

Stockinger Corporation has provided the following information concerning a capital budgeting project: The company's income tax rate is 30% and its after-tax discount rate is 11%. The working capital would be required immediately and would be released for use elsewhere at the end of the project. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
The total cash flow net of income taxes in year 2 is:

A) $133,000
B) $160,000
C) $90,000
D) $77,000

Question 41

Mesko Corporation has provided the following information concerning a capital budgeting project: The company's income tax rate is 30% and its after-tax discount rate is 15%. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
The income tax expense in year 3 is:

A) $6,000
B) $18,000
C) $24,000
D) $12,000

Question 42

Mesko Corporation has provided the following information concerning a capital budgeting project: The company's income tax rate is 30% and its after-tax discount rate is 15%. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
The total cash flow net of income taxes in year 3 is:

A) $34,000
B) $62,000
C) $14,000
D) $40,000

Question 43

Boynes Corporation is considering a capital budgeting project that would require investing $200,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $490,000 and annual incremental cash operating expenses would be $330,000. The project would also require an immediate investment in working capital of $10,000 which would be released for use elsewhere at the end of the project. The project would also require a one-time renovation cost of $70,000 in year 3. The company's income tax rate is 30% and its after-tax discount rate is 14%. The company uses straight-line depreciation. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. The total cash flow net of income taxes in year 2 is:

A) $78,000
B) $160,000
C) $110,000
D) $127,000

Question 44

Boynes Corporation is considering a capital budgeting project that would require investing $200,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $490,000 and annual incremental cash operating expenses would be $330,000. The project would also require an immediate investment in working capital of $10,000 which would be released for use elsewhere at the end of the project. The project would also require a one-time renovation cost of $70,000 in year 3. The company's income tax rate is 30% and its after-tax discount rate is 14%. The company uses straight-line depreciation. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. The income tax expense in year 3 is:

A) $12,000
B) $48,000
C) $33,000
D) $21,000

Question 45

Manjarrez Corporation has provided the following information concerning a capital budgeting project: The company's income tax rate is 30% and its after-tax discount rate is 6%. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
The income tax expense in year 2 is:

A) $18,000
B) $168,000
C) $21,000
D) $129,000

Question 46

Mesko Corporation has provided the following information concerning a capital budgeting project: The company's income tax rate is 30% and its after-tax discount rate is 15%. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
The income tax expense in year 2 is:

A) $12,000
B) $18,000
C) $6,000
D) $24,000

Question 47

Boynes Corporation is considering a capital budgeting project that would require investing $200,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $490,000 and annual incremental cash operating expenses would be $330,000. The project would also require an immediate investment in working capital of $10,000 which would be released for use elsewhere at the end of the project. The project would also require a one-time renovation cost of $70,000 in year 3. The company's income tax rate is 30% and its after-tax discount rate is 14%. The company uses straight-line depreciation. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. The income tax expense in year 2 is:

A) $33,000
B) $48,000
C) $21,000
D) $12,000

Question 48

Podratz Corporation has provided the following information concerning a capital budgeting project: The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
The total cash flow net of income taxes in year 2 is:

A) $160,000
B) $110,000
C) $127,000
D) $77,000

Question 49

Mesko Corporation has provided the following information concerning a capital budgeting project: The company's income tax rate is 30% and its after-tax discount rate is 15%. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
Use Exhibit 7B-1 to determine the appropriate discount factor(s) using table.
The net present value of the entire project is closest to:

A) $78,648
B) $168,000
C) $97,072
D) $140,000

Question 50

Waltermire Corporation has provided the following information concerning a capital budgeting project: The working capital would be required immediately and would be released for use elsewhere at the end of the project. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
Use Exhibit 7B-1 to determine the appropriate discount factor(s) using table.
The net present value of the entire project is closest to:

A) $224,000
B) $193,640
C) $101,648
D) $120,728

Question 51

Manjarrez Corporation has provided the following information concerning a capital budgeting project: The company's income tax rate is 30% and its after-tax discount rate is 6%. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
The total cash flow net of income taxes in year 2 is:

A) $109,000
B) $130,000
C) $70,000
D) $21,000

Question 52

Manjarrez Corporation has provided the following information concerning a capital budgeting project: The company's income tax rate is 30% and its after-tax discount rate is 6%. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
Use Exhibit 7B-1 to determine the appropriate discount factor(s) using table.
The net present value of the entire project is closest to:

A) $377,685
B) $137,685
C) $210,450
D) $196,000

Question 53

Boynes Corporation is considering a capital budgeting project that would require investing $200,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $490,000 and annual incremental cash operating expenses would be $330,000. The project would also require an immediate investment in working capital of $10,000 which would be released for use elsewhere at the end of the project. The project would also require a one-time renovation cost of $70,000 in year 3. The company's income tax rate is 30% and its after-tax discount rate is 14%. The company uses straight-line depreciation. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. Use Exhibit 7B-1 to determine the appropriate discount factor(s) using table.
The net present value of the entire project is closest to:

A) $259,000
B) $126,876
C) $214,750
D) $132,796

Question 54

Waltermire Corporation has provided the following information concerning a capital budgeting project: The working capital would be required immediately and would be released for use elsewhere at the end of the project. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
The total cash flow net of income taxes in year 2 is:

A) $96,000
B) $24,000
C) $120,000
D) $80,000

Question 55

Stockinger Corporation has provided the following information concerning a capital budgeting project: The company's income tax rate is 30% and its after-tax discount rate is 11%. The working capital would be required immediately and would be released for use elsewhere at the end of the project. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
Use Exhibit 7B-1 to determine the appropriate discount factor(s) using table.
The net present value of the entire project is closest to:

A) $196,000
B) $61,763
C) $81,533
D) $122,469

Question 56

Boynes Corporation is considering a capital budgeting project that would require investing $200,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $490,000 and annual incremental cash operating expenses would be $330,000. The project would also require an immediate investment in working capital of $10,000 which would be released for use elsewhere at the end of the project. The project would also require a one-time renovation cost of $70,000 in year 3. The company's income tax rate is 30% and its after-tax discount rate is 14%. The company uses straight-line depreciation. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. The total cash flow net of income taxes in year 3 is:

A) $78,000
B) $90,000
C) $57,000
D) $127,000

Question 57

Podratz Corporation has provided the following information concerning a capital budgeting project: The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
Use Exhibit 7B-1 to determine the appropriate discount factor(s) using table.
The net present value of the entire project is closest to:

A) $187,276
B) $220,624
C) $308,000
D) $266,000

Question 58

Waltermire Corporation has provided the following information concerning a capital budgeting project: The working capital would be required immediately and would be released for use elsewhere at the end of the project. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
The income tax expense in year 2 is:

A) $24,000
B) $12,000
C) $102,000
D) $138,000

Question 59

Podratz Corporation has provided the following information concerning a capital budgeting project: The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
The total cash flow net of income taxes in year 3 is:

A) $61,500
B) $127,000
C) $85,000
D) $100,000

Question 60

Mesko Corporation has provided the following information concerning a capital budgeting project: The company's income tax rate is 30% and its after-tax discount rate is 15%. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
The total cash flow net of income taxes in year 2 is:

A) $42,000
B) $56,000
C) $62,000
D) $80,000

Question 61

Reye Corporation has provided the following information concerning a capital budgeting project: The company's income tax rate is 30% and its after-tax discount rate is 9%. The working capital would be required immediately and would be released for use elsewhere at the end of the project. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
The income tax expense in year 2 is:

A) $129,000
B) $15,000
C) $18,000
D) $96,000

Question 62

Correll Corporation is considering a capital budgeting project that would require investing $240,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $570,000 and annual incremental cash operating expenses would be $420,000. The project would also require a one-time renovation cost of $40,000 in year 3. The company's income tax rate is 30% and its after-tax discount rate is 15%. The company uses straight-line depreciation. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. The total cash flow net of income taxes in year 2 is:

A) $95,000
B) $90,000
C) $150,000
D) $123,000

Question 63

Decelle Corporation is considering a capital budgeting project that would require investing $80,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $260,000 and annual incremental cash operating expenses would be $210,000. The project would also require an immediate investment in working capital of $20,000 which would be released for use elsewhere at the end of the project. The project would also require a one-time renovation cost of $20,000 in year 3. The company's income tax rate is 30% and its after-tax discount rate is 12%. The company uses straight-line depreciation. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. The income tax expense in year 2 is:

A) $9,000
B) $15,000
C) $6,000
D) $3,000

Question 64

Hinger Corporation is considering a capital budgeting project that would require investing $120,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $350,000 and annual incremental cash operating expenses would be $250,000. The project would also require an immediate investment in working capital of $10,000 which would be released for use elsewhere at the end of the project. The project would also require a one-time renovation cost of $40,000 in year 3. The company's income tax rate is 30% and its after-tax discount rate is 11%. The company uses straight-line depreciation. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. The total cash flow net of income taxes in year 2 is:

A) $49,000
B) $100,000
C) $79,000
D) $70,000

Question 65

Vanzant Corporation has provided the following information concerning a capital budgeting project: The working capital would be required immediately and would be released for use elsewhere at the end of the project. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
Use Exhibit 7B-1, to determine the appropriate discount factor(s) using the tables provided.
The net present value of the entire project is closest to:

A) $149,290
B) $251,440
C) $165,130
D) $231,000

Question 66

Correll Corporation is considering a capital budgeting project that would require investing $240,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $570,000 and annual incremental cash operating expenses would be $420,000. The project would also require a one-time renovation cost of $40,000 in year 3. The company's income tax rate is 30% and its after-tax discount rate is 15%. The company uses straight-line depreciation. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. The income tax expense in year 3 is:

A) $27,000
B) $15,000
C) $12,000
D) $45,000

Question 67

Reye Corporation has provided the following information concerning a capital budgeting project: The company's income tax rate is 30% and its after-tax discount rate is 9%. The working capital would be required immediately and would be released for use elsewhere at the end of the project. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
The total cash flow net of income taxes in year 2 is:

A) $60,000
B) $110,000
C) $18,000
D) $92,000

Question 68

Bourland Corporation is considering a capital budgeting project that would require investing $80,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $250,000 and annual incremental cash operating expenses would be $180,000. The project would also require a one-time renovation cost of $40,000 in year 3. The company's income tax rate is 30% and its after-tax discount rate is 8%. The company uses straight-line depreciation. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. Use Exhibit 7B-1, to determine the appropriate discount factor(s) using the tables provided.
The net present value of the entire project is closest to:

A) $79,928
B) $159,928
C) $120,080
D) $112,000

Question 69

Correll Corporation is considering a capital budgeting project that would require investing $240,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $570,000 and annual incremental cash operating expenses would be $420,000. The project would also require a one-time renovation cost of $40,000 in year 3. The company's income tax rate is 30% and its after-tax discount rate is 15%. The company uses straight-line depreciation. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. The income tax expense in year 2 is:

A) $27,000
B) $15,000
C) $45,000
D) $12,000

Question 70

Vanzant Corporation has provided the following information concerning a capital budgeting project: After-tax discount rate 6%
Tax rate 30%
Expected life of the project 4
Investment required in equipment $ 240,000
Salvage value of equipment $ 0
Working capital requirement $ 20,000
Annual sales $ 540,000
Annual cash operating expenses $ 380,000
One-time renovation expense in year 3 $ 70,000
The working capital would be required immediately and would be released for use elsewhere at the end of the project. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
The income tax expense in year 2 is:

A) $48,000
B) $9,000
C) $21,000
D) $30,000

Question 71

Reye Corporation has provided the following information concerning a capital budgeting project: The company's income tax rate is 30% and its after-tax discount rate is 9%. The working capital would be required immediately and would be released for use elsewhere at the end of the project. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
Use Exhibit 7B-1 to determine the appropriate discount factor(s) using table.
The net present value of the entire project is closest to:

A) $92,148
B) $150,450
C) $77,988
D) $168,000

Question 72

Decelle Corporation is considering a capital budgeting project that would require investing $80,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $260,000 and annual incremental cash operating expenses would be $210,000. The project would also require an immediate investment in working capital of $20,000 which would be released for use elsewhere at the end of the project. The project would also require a one-time renovation cost of $20,000 in year 3. The company's income tax rate is 30% and its after-tax discount rate is 12%. The company uses straight-line depreciation. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. The income tax expense in year 3 is:

A) $15,000
B) $6,000
C) $3,000
D) $9,000

Question 73

Correll Corporation is considering a capital budgeting project that would require investing $240,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $570,000 and annual incremental cash operating expenses would be $420,000. The project would also require a one-time renovation cost of $40,000 in year 3. The company's income tax rate is 30% and its after-tax discount rate is 15%. The company uses straight-line depreciation. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. The total cash flow net of income taxes in year 3 is:

A) $83,000
B) $123,000
C) $95,000
D) $110,000

Question 74

Bourland Corporation is considering a capital budgeting project that would require investing $80,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $250,000 and annual incremental cash operating expenses would be $180,000. The project would also require a one-time renovation cost of $40,000 in year 3. The company's income tax rate is 30% and its after-tax discount rate is 8%. The company uses straight-line depreciation. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. The income tax expense in year 3 is:

A) $3,000
B) $21,000
C) $12,000
D) $15,000

Question 75

Vanzant Corporation has provided the following information concerning a capital budgeting project: The working capital would be required immediately and would be released for use elsewhere at the end of the project. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.
The income tax expense in year 3 is:

A) $30,000
B) $21,000
C) $9,000
D) $48,000

Question 76

Bourland Corporation is considering a capital budgeting project that would require investing $80,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $250,000 and annual incremental cash operating expenses would be $180,000. The project would also require a one-time renovation cost of $40,000 in year 3. The company's income tax rate is 30% and its after-tax discount rate is 8%. The company uses straight-line depreciation. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. The income tax expense in year 2 is:

A) $3,000
B) $15,000
C) $21,000
D) $12,000

Question 77

Decelle Corporation is considering a capital budgeting project that would require investing $80,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $260,000 and annual incremental cash operating expenses would be $210,000. The project would also require an immediate investment in working capital of $20,000 which would be released for use elsewhere at the end of the project. The project would also require a one-time renovation cost of $20,000 in year 3. The company's income tax rate is 30% and its after-tax discount rate is 12%. The company uses straight-line depreciation. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. Use Exhibit 7B-1, to determine the appropriate discount factor(s) using the tables provided.
The net present value of the entire project is closest to:

A) $14,590
B) $50,380
C) $70,000
D) $27,310

Question 78

Hinger Corporation is considering a capital budgeting project that would require investing $120,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $350,000 and annual incremental cash operating expenses would be $250,000. The project would also require an immediate investment in working capital of $10,000 which would be released for use elsewhere at the end of the project. The project would also require a one-time renovation cost of $40,000 in year 3. The company's income tax rate is 30% and its after-tax discount rate is 11%. The company uses straight-line depreciation. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. Use Exhibit 7B-1 to determine the appropriate discount factor(s) using table.
The net present value of the entire project is closest to:

A) $101,259
B) $108,547
C) $115,137
D) $240,000

Question 79

Hinger Corporation is considering a capital budgeting project that would require investing $120,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $350,000 and annual incremental cash operating expenses would be $250,000. The project would also require an immediate investment in working capital of $10,000 which would be released for use elsewhere at the end of the project. The project would also require a one-time renovation cost of $40,000 in year 3. The company's income tax rate is 30% and its after-tax discount rate is 11%. The company uses straight-line depreciation. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. The total cash flow net of income taxes in year 3 is:

A) $79,000
B) $42,000
C) $51,000
D) $30,000

Question 80

Correll Corporation is considering a capital budgeting project that would require investing $240,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $570,000 and annual incremental cash operating expenses would be $420,000. The project would also require a one-time renovation cost of $40,000 in year 3. The company's income tax rate is 30% and its after-tax discount rate is 15%. The company uses straight-line depreciation. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. Use Exhibit 7B-1, to determine the appropriate discount factor(s) using the tables provided.
The net present value of the entire project is closest to:

A) $224,000
B) $162,080
C) $92,864
D) $332,864