Chapter 13C - Solution Manual

Chapter 13C - Solution Manual - Chapter 13C Income Taxes in...

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Chapter 13C Income Taxes in Capital Budgeting Decisions Appendix 13C Income Taxes in Capital Budgeting Decisions Exercise 13C-1  (20 minutes) Items and Computations Year(s) (1)  Amount (2)  Tax  Effect (1) × (2)  After-Tax  Cash  Flows 10%  Facto r Present  Value of  Cash  Flows Project A: Investment in photocopier. ............... Now \$(50,000) \$(50,000) 1.000 \$(50,000) Annual net cash inflows. .................. 1-8 \$9,000 1 – 0.30 \$6,300 5.335 33,611 Depreciation deductions*. ................ 1-8 \$6,250 0.30 \$1,875 5.335 10,003 Salvage value of the photocopier. ..... 8 \$5,000 1 – 0.30 \$3,500 0.467         1,635     Net present value. ............................ \$(       4,751     )   Project B: Investment in working capital. .......... Now \$(50,000) \$(50,000) 1.000 \$(50,000) Annual net cash inflows. .................. 1-8 \$9,000 1 – 0.30 \$6,300 5.335 33,611 Release of working capital. .............. 8 \$50,000 \$50,000 0.467     23,350     Net present value. ............................ \$       6,961     13C-1

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Chapter 13C Income Taxes in Capital Budgeting Decisions * \$50,000 ÷ 8 years = \$6,250 per year Exercise 13C-2  (20 minutes) 1. Annual cost of student help in collating. ............ \$60,000 Annual cost of the new collating machine: Operator. ......................................................... \$18,000 Maintenance. ..................................................       7,000       25,000     Annual net cost savings (cash inflow). ............... \$35,000 2. The net present value analysis follows: Items and Computations Year(s) (1)  Amount (2)  Tax  Effect (1) × (2)  After-Tax  Cash  Flows 14%  Facto r Present  Value of  Cash  Flows Cost of the new collating machine. ..... Now \$(140,000) \$(140,000) 1.000 \$(140,000) Annual net cost savings (above). ........ 1-10 \$35,000 1 – 0.30 \$24,500 5.216
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Chapter 13C - Solution Manual - Chapter 13C Income Taxes in...

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