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20. What is the amount of the earnings before interest and taxes for the first year of this project? A. $38,500B.$59,000C. $67,000D. $76,500E. $159,0008-10
EBIT = $554,000 - $430,000 - ($325,000 ÷5) = $59,000Difficulty level: MediumTopic: EBIT21. What is the amount of the after-tax cash flow from the sale of the fixed assets at the end of this project? (Round your answer to the nearest whole dollar.) Difficulty level: MediumTopic: After-Tax Salvage Value8-11
22. What is the cash flow recovery from net working capital at the end of this project? Difficulty level: MediumTopic: Recovery of Net Working CapitalLouie's Leisure Products is considering a project which will require the purchase of $1.4 million in new equipment. The equipment will be depreciated straight-line to a zero book value over the 7-year life of the project. Louie's expects to sell the equipment at the end of the project for 20% of its original cost. Annual sales from this project are estimated at $1.2 million. New net working capital equal to 20% of sales will be required to support the project. All of the new net working capital will be recouped at the end of the project. The firm desires a minimal 14% rate of return on this project. The tax rate is 34%.23. What is the value of the depreciation tax shield in year 2 of the project? Difficulty level: MediumTopic: Depreciation Tax Shield24. What is the amount of the after-tax salvage value of the equipment? A. $47,600B. $72,000C. $95,200D. $144,000E.$184,800After-tax salvage value = $1,400,000 ×.20 ×(1-.34) = $184,800Difficulty level: MediumTopic: After-Tax Salvage Value8-12
25. What is the recovery amount attributable to net working capital at the end of the project? Difficulty level: MediumTopic: Change in Net Working Capital8-13