FI 311 Connect homework #12

FI 311 Connect homework #12 - Connect 12 1 Kelly's Corner...

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Connect 12 1) Kelly's Corner Bakery purchased a lot in Oil City five years ago at a cost of $610,000. Today, that lot has a market value of $750,000. At the time of the purchase, the company spent $54,000 to level the lot and another $4,700 to install storm drains. The company now wants to build a new facility on that site. The building cost is estimated at $1,090,000. What amount should be used as the initial cash flow for this project? $-1,754,000 $-1,840,000 $-1,090,000 $-1,700,000 $-1,894,000 CF 0 = -$750,000 – $1,090,000 = -$1,840,000 2) Jefferson & Sons is evaluating a project that will increase annual sales by $90,000 and annual costs by $35,000. The project will initially require $145,000 in fixed assets that will be depreciated straight-line to a zero book value over the 10 year life of the project. The applicable tax rate is 34 percent. What is the operating cash flow for this project? $26,730 $40,500 $730 $41,230 $36,300 OCF = ($90,000 – $35,000) (1 – 0.34) + ($145,000/10) (0.34) = $41,230 3) Bernie's Beverages purchased some fixed assets classified as 5-year property for MACRS. The assets cost $25,000. What will the accumulated depreciation be at the end of year three? MACRS 5-year property Year Rate 1 20.00% 2 32.00% 3 19.20% 4 11.52% 5 11.52% 6 5.76% $13,000 $21,075 $5,000 $17,800
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
$2,880 Depreciation = $25,000 x (0.20 + 0.32 + 0.192) = $17,800 4) Edward's Manufactured Homes purchased some machinery 2 years ago for $47,000. The assets are classified as 5-year property for MACRS. The company is replacing this machinery today with newer machines that utilize the latest in technology. The old machines are being sold for $17,000 to a foreign firm for use in its production facility in South America. What is the aftertax salvage value from this sale if the tax rate is 34 percent? MACRS 5-year property Year Rate 1 20.00% 2 32.00% 3 19.20% 4 11.52% 5 11.52% 6 5.76% $15,822.24 $17,895.44 $22,560.00 $18,890.40 $17,000.00 Book value 2 = $47,000 x (1 – 0.20 – 0.32) = $22,560.00 Tax on sale = ($17,000 – $22,560.00) x .34 = -$1,890.40 Aftertax cash flow = $17,000 + $1,890.40 = $18,890.40 5) Champion Bakers uses specialized ovens to bake its bread. One oven costs $860,000 and lasts
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern