What is the cash flow recovery from net working capital at the end of this

# What is the cash flow recovery from net working

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78. What is the cash flow recovery from net working capital at the end of this project? Net working capital recovery = \$160,000 + \$35,000 - \$100,000 = \$95,000Difficulty level: MediumTopic: RECOVERY OF NET WORKING CAPITALType: PROBLEMSLouie'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. Net working capital equal to 20% of sales will be required to support the project. All of the 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%.79. What is the value of the depreciation tax shield in year 2 of the project? Depreciation tax shield = \$1,400,000 ÷7 ×.34 = \$68,000Difficulty level: MediumTopic: DEPRECIATION TAX SHIELDType: PROBLEMS6-70
Chapter 06 - Making Capital Investment Decisions80. What is the amount of the after-tax salvage value of the equipment? After-tax salvage value = \$1,400,000 ×.20 ×(1 - .34) = \$184,800Difficulty level: MediumTopic: AFTER-TAX SALVAGE VALUEType: PROBLEMS81. What is the recovery amount attributable to net working capital at the end of the project? NWC recapture = .20 ×\$1,200,000 = \$240,000Difficulty level: MediumTopic: CHANGE IN NET WORKING CAPITALType: PROBLEMSSchroeder Electronics is considering a project which will require the purchase of \$5 million in new equipment. The equipment will be depreciated straight-line to a zero book value over the 5-year life of the project. Schroeder's expects to sell the equipment at the end of the project for 10% of its original cost. Annual sales from this project are estimated at \$2.3 million. Net working capital equal to 10% of sales will be required to support the project. All of the net working capital will be recouped at the end of the project. Schroeder desires a 12% rate of return on this project. The tax rate is 40%.6-71
Chapter 06 - Making Capital Investment Decisions82. What is the value of the depreciation tax shield in year 2 of the project? Depreciation tax shield = \$5,000,000 ÷5 ×.40 = \$400,000Difficulty level: MediumTopic: DEPRECIATION TAX SHIELDType: PROBLEMS