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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