FI 311 Connect homework #12

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

Info iconThis 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
Background image of page 1

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

View Full DocumentRight 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
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 12/06/2011 for the course FI 311 taught by Professor Booth during the Fall '06 term at Michigan State University.

Page1 / 6

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

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online