Deck 30: Income Taxes and the Present Value Method

Question 1

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

Answer 1

False

Question 2

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

Answer 2

True

Question 3

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%.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

Answer 3

A
Explanation:
Present value = 0.735 × $50,000 = $36,750

Question 4

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

Question 5

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 40%.The after-tax net cash inflow at Summit last year was:

A) $150,000
B) $60,000
C) $90,000
D) $400,000

Question 6

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 7

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 35%.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.
The net present value of the project is closest to:

A) $156,610
B) $169,000
C) $75,050
D) $82,130

Question 8

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.
The net present value of the project is closest to:

A) $88,740
B) $110,500
C) $165,669
D) $45,669

Question 9

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 10

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

Question 11

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's tax rate is 35%.The company uses straight-line depreciation on all equipment. The income tax expense in year 2:

A) $56,000
B) $14,000
C) $17,500
D) $31,500

Question 12

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 13

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%.The present value of this future cash flow is closest to:

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

Question 14

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 15

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.

Question 16

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 17

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 35% 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. The net present value of the project is closest to:

A) $211,280
B) $234,000
C) $281,316
D) $121,316

Question 18

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 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

All cash inflows are taxable.

Question 21

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) $76,000
B) $56,500
C) $90,000
D) $40,000

Question 22

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) $3,500
B) $21,000
C) $42,000
D) $24,500

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 35%. The income tax expense in year 2 is:

A) $7,000
B) $10,500
C) $17,500
D) $28,000

Question 24

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) $57,500
B) $92,500
C) $157,500
D) $110,000

Question 25

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.
The net present value of the project is closest to:

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

Question 26

(Appendix 13C) Stockinger Corporation has provided the following information concerning a capital budgeting project:
$\begin{array}{lr}\text {Investment requiredin equipment. }&\$280,000\\\text {Expected life of the project. }&4\\\text { Salvage value of equipment. }&\$0\\\text { Annual sales.}&\$580,000\\\text {Annual cash operating expenses }&\$420,000\\\text {Working capital requirement. }&\$30,000\\\text {One-time renovation expense in year 3}&\$80,000\\\end{array}$
The company's income tax rate is 35% 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) $128,500
B) $160,000
C) $90,000
D) $76,500

Question 27

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 35%. The company uses straight-line depreciation on all equipment.
The income tax expense in year 3 is:

A) $7,000
B) $38,500
C) $14,000
D) $21,000

Question 28

Lennox Corporation has provided the following information concerning a capital budgeting project:
The company's tax rate is 35%.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) $26,500
C) $39,500
D) $50,000

Question 29

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 30

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.
The net present value of the project is closest to:

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

Question 31

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.
The net present value of the project is closest to:

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

Question 32

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.
The net present value of the project is closest to:

A) $125,560
B) $227,250
C) $143,000
D) $67,250

Question 33

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. The net present value of the project is closest to:

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

Question 34

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) $41,500
B) $121,500
C) $69,500
D) $80,000

Question 35

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 36

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.
The net present value of the project is closest to:

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

Question 37

(Appendix 13C) Stockinger Corporation has provided the following information concerning a capital budgeting project:
$\begin{array}{lr}\text {Investment requiredin equipment. }&\$280,000\\\text {Expected life of the project. }&4\\\text { Salvage value of equipment. }&\$0\\\text { Annual sales.}&\$580,000\\\text {Annual cash operating expenses }&\$420,000\\\text {Working capital requirement. }&\$30,000\\\text {One-time renovation expense in year 3}&\$80,000\\\end{array}$
The company's income tax rate is 35% 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) $76,500
B) $80,000
C) $48,500
D) $128,500

Question 38

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 35% 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.
The net present value of the project is closest to:

A) $323,238
B) $208,000
C) $211,970
D) $123,238

Question 39

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) $35,000
B) $3,500
C) $10,500
D) $14,000

Question 40

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 35% 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) $17,500
B) $10,500
C) $7,000
D) $42,000

Question 41

(Appendix 13C) 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) $121,500
D) $82,500

Question 42

(Appendix 13C) 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 net present value of the entire project is closest to:

A) $171,442
B) $371,442
C) $282,280
D) $247,000

Question 43

(Appendix 13C) Mesko Corporation has provided the following information concerning a capital budgeting project:
The company's income tax rate is 35% 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 net present value of the entire project is closest to:

A) $71,396
B) $151,396
C) $122,160
D) $130,000

Question 44

(Appendix 13C) 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 net present value of the entire project is closest to:

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

Question 45

(Appendix 13C) Mesko Corporation has provided the following information concerning a capital budgeting project:
The company's income tax rate is 35% 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 net present value of the entire project is closest to:

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

Question 46

(Appendix 13C) Mesko Corporation has provided the following information concerning a capital budgeting project:
The company's income tax rate is 35% 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) $33,000
B) $59,000
C) $19,000
D) $40,000

Question 47

(Appendix 13C) 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

(Appendix 13C) 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 49

(Appendix 13C) 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 50

(Appendix 13C) Mesko Corporation has provided the following information concerning a capital budgeting project:
The company's income tax rate is 35% 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) $7,000
B) $21,000
C) $28,000
D) $14,000

Question 51

(Appendix 13C) Mesko Corporation has provided the following information concerning a capital budgeting project:
The company's income tax rate is 35% 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) $33,000
B) $60,000
C) $59,000
D) $80,000

Question 52

(Appendix 13C) 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) $121,500
C) $82,500
D) $100,000

Question 53

(Appendix 13C) Mesko Corporation has provided the following information concerning a capital budgeting project:
The company's income tax rate is 35% 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) $109,000
B) $130,000
C) $70,000
D) $21,000

Question 54

(Appendix 13C) 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 net present value of the entire project is closest to:

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

Question 55

(Appendix 13C) 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 56

(Appendix 13C) 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 57

(Appendix 13C) 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 58

(Appendix 13C) Mesko Corporation has provided the following information concerning a capital budgeting project:
The company's income tax rate is 35% 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) $18,000
B) $168,000
C) $21,000
D) $129,000

Question 59

(Appendix 13C) Mesko Corporation has provided the following information concerning a capital budgeting project:
The company's income tax rate is 35% 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) $14,000
B) $21,000
C) $7,000
D) $28,000

Question 60

(Appendix 13C) Stockinger Corporation has provided the following information concerning a capital budgeting project:
$\begin{array}{lr}\text {Investment requiredin equipment. }&\$280,000\\\text {Expected life of the project. }&4\\\text { Salvage value of equipment. }&\$0\\\text { Annual sales.}&\$580,000\\\text {Annual cash operating expenses }&\$420,000\\\text {Working capital requirement. }&\$30,000\\\text {One-time renovation expense in year 3}&\$80,000\\\end{array}$
The company's income tax rate is 35% 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 net present value of the entire project is closest to:

A) $182,000
B) $50,724
C) $70,494
D) $147,770

Question 61

(Appendix 13C) 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 net present value of the entire project is closest to:

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

Question 62

(Appendix 13C) 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 net present value of the entire project is closest to:

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

Question 63

(Appendix 13C) 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 64

(Appendix 13C) 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 65

(Appendix 13C) 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 net present value of the entire project is closest to:

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

Question 66

(Appendix 13C) 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) $15,000
B) $6,000
C) $3,000
D) $9,000

Question 67

(Appendix 13C) 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 68

(Appendix 13C) 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 net present value of the entire project is closest to:

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

Question 69

(Appendix 13C) 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 70

(Appendix 13C) 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 net present value of the entire project is closest to:

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

Question 71

(Appendix 13C) 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 72

(Appendix 13C) 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 2 is:

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

Question 73

(Appendix 13C) 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) $9,000
B) $15,000
C) $6,000
D) $3,000

Question 74

(Appendix 13C) 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 75

(Appendix 13C) 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 76

(Appendix 13C) 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 77

(Appendix 13C) 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 78

(Appendix 13C) 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 35% 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) $49,500
B) $100,000
C) $75,500
D) $70,000

Question 79

(Appendix 13C) 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 35% 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 net present value of the entire project is closest to:

A) $91,861
B) $157,650
C) $85,271
D) $156,000

Question 80

(Appendix 13C) 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 35% 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) $75,500
B) $60,000
C) $49,500
D) $35,500