Last year your construction company had operating revenues of $1,240,000, operating costs of $520,000 and a CCA of $98,000 based upon existing assets. The beginning of that same year the company bought essential new equipment for $130,000. This equipment has a CCA rate of 30%. The company has borrowed money and is paying $18,000 per year in interest. Interest paid on borrowed money is tax deductible, so it reduces the taxable income. You also managed somehow to deduct the first-class flight tickets for all the vice- presidents and their spouses on a business trip to Cancun, Mexico, which cost a total of $50,000. The tax rate is 37.62%. Net profit is close to:

Last year your construction company had operating revenues of $1,240,000, operating costs of $520,000 and a CCA of $98,000 based upon existing assets. The beginning of that same year the company bought essential new equipment for $130,000. This equipment has a CCA rate of 30%. The company has borrowed money and is paying $18,000 per year in interest. Interest paid on borrowed money is tax deductible, so it reduces the taxable income. You also managed somehow to deduct the first-class flight tickets for all the vice- presidents and their spouses on a business trip to Cancun, Mexico, which cost a total of $50,000. The tax rate is 37.62%. Net profit is close to:

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 11P

See similar textbooks

Similar questions

A new piece of equipment costs $500,000, and depreciated according to the 5 year MACRS schedule. Assume the equipment makes you earn 350,000 a year more, and increases the operating expenses by $100,000 annually. Assume a federal applicable tax rate of 32%. For year 2, calculate: (a) before tax cash flow (BTCF) (b) taxable income (c) taxes due (d) after tax cash flow (ATCF)
Florida Construction Equipment Rentals (FCER) purchases a new 10,000-pound-rated crane for rental to its customers. This crane costs $1,125,000 and is expected to last for 25 years, at which time it will have an expected salvage value of $147,000. FCER earns $195,000 before-tax cash flow each year in rental income from this crane, and its total taxable income each year is between $10M and $15M. If FCER uses straight-line depreciation and a MARR of 15%, what is the present worth of the after-tax cash flow for this equipment? Should the company invest in this crane?
Valles Galactic Industries recently bought a new plant for $27,000,000. The entire plant may be depreciated under the 7-year MACRS category and will be in-business for 8 years. VGI anticipates revenue of $8,000,000 a year in year 1 growing by $2,000,000 per year each year thereafter. VGI pays taxes at a rate of 12%. What is their after-tax rate of return on their investment?
The Jones Company has just completed the third year of a five-year MACRS recovery period for a piece of equipment it originally purchased for $299,000. a. What is the book value of the equipment? b. If Jones sells the equipment today for $181,000 and its tax rate is 21%, what is the after-tax cash flow from selling it? Note: Assume that the equipment is put into use in year 1. a. What is the book value of the equipment? The book value of the equipment after the third year is $ (Round to the nearest dollar.)
A firm invests $10.70 million in a new stamping machine. It depreciates straight-line for tax purposes over 5 years. The tax rate is 21%, inflation is 2% a year, and the discount rate is 8%. What is the PV of the depreciation tax shield?
The Jones Company has just completed the third year of a five-year MACRS recovery period for a piece of equipment it originally purchased for $303,000. a. What is the book value of the equipment? b. If Jones sells the equipment today for $185,000 and its tax rate is 21%, what is the after-tax cash flow from selling it? Note: Assume that the equipment is put into use in year 1. a. What is the book value of the equipment? The book value of the equipment after the third year is $ (Round to the nearest dollar.) b. If Jones sells the equipment today for $185,000 and its tax rate is 21%, what is the after-tax cash flow from selling it? The total after-tax proceeds from the sale will be $ (Round to the nearest dollar.)
Sadik Industries must install $1 million of new machinery in its Texas plant. It can obtain a 6-year bank loan for 100% of the cost at a 14% interest rate with equal payments at the end of each year. Sadik’s tax rate is 25%. The equipment falls in the MACRS 3-year class. (The depreciation rates for Year 1 through Year 4 are equal to 0.3333, 0.4445, 0.1481, and 0.0741.)Alternatively, a Texas investment banking firm that represents a group of investors can arrange a guideline lease calling for payments of $320,000 at the end of each year for 3 years. Under the proposed lease terms, the Sadik must pay for insurance, property taxes, and maintenance.Sadik must use the equipment if it is to continue in business, so it will almost certainly want to acquire the property at the end of the lease. If it does, then under the lease terms, it can purchase the machinery at its fair market value at Year 3. The best estimate of this market value is $200,000, but it could be much higher or lower under…
Scallop Corporation purchased oil exploration equipment for $600,000 that will be depreciated over 10 years using the double declining balance method. Combined state and federal tax rate is 24%. The equipment may be rented each year for $330,000, and will then be sold after 5 years for $200,000. What is the after-tax rate of return?
You purchased a commercial office building for $2,200,000 one year ago. The appraisal noted the value of the land was worth $550,000. You financed the purchase through a debt instrument with a loan-to-value ratio of 60% and an interest rate of 8.00% amortized over 25 years. The property's first year of operations resulted in an NOI of $250,000. Assume an income tax rate of 35% What was the building's cash flow after taxes in year one? O $96,729 O $66,765 $57,599 $91,793
Comey Products has decided to acquire some new equipment having a $300,000 purchase price. The equipment will last 4 years and is in the MACRS 3-year class. (The depreciation rates for Year 1 through Year 4 are equal to 0.3333, 0.4445, 0.1481, and 0.0741.) The firm can borrow at a 7% rate and pays a 25% federal-plus-state tax rate. Comey is considering leasing the property but wishes to know the cost of borrowing that it should use when comparing purchasing to leasing and has hired you to answer this question. What is the correct answer to Comey’s question? (Hint: Use the shortcut method to find the after-tax cost of the loan payments.) Do not round intermediate calculations. Round your answer to the nearest dollar.
A corporation has annual sales of $1,500,000 and costs of $698,000 in the first year. Aplant is installed at a cost of $1,200,000. It will be depreciated straight line to zero in itsuseful life of 4 years. The tax rate is 35%. Calculate the operating cash flow for the firstyear.
A mixer was purchased two years ago for $63346 and can be sold for $171667 today. The mixer has been depreciated using the MACRS 5-year recovery period and the firm pays 40 percent taxes on both ordinary income and capital gain. Find the after tax proceeds.