{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

finance_mngmt_chap10

# finance_mngmt_chap10 - Chapter 10 Making Capital Investment...

This preview shows pages 1–2. Sign up to view the full content.

Chapter 10: Making Capital Investment Decisions Problem : Summer Tyme, Inc., is considering a new 6-year expansion project that requires an initial fixed asset investment of \$2.214 million. The fixed asset will be depreciated straight-line to zero over its 6-year tax life, after which time it will be worthless. The project is estimated to generate \$1,968,000 in annual sales, with costs of \$787,200. If the tax rate is 34 percent, the OCF for this project is \$ ______ Answer : Using the tax shield approach to calculating OCF (Remember the approach is irrelevant; the final answer will be the same no matter which of the four methods you use.), we get: OCF = (Sales − Costs)(1 − t C ) + t C Depreciation OCF = (\$1,968,000 − 787,200)(1 − .34) + .34(\$2,214,000/6) OCF = \$904,788 Problem : Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of \$3.618 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life, after which time it will be worthless. The project is estimated to

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

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 2

finance_mngmt_chap10 - Chapter 10 Making Capital Investment...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online