Principles Of Taxation For Business And Investment Planning 2020 Edition
23rd Edition
ISBN: 9781259969546
Author: Sally Jones, Shelley C. Rhoades-Catanach, Sandra R Callaghan
Publisher: McGraw-Hill Education
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Chapter 3, Problem 15AP
Corporation ABC invested in a project that will generate $60,000 annual after-tax cash flow in years 0 and 1 and $40,000 annual after-tax cash flow in years 2, 3, and 4. Compute the
- a. ABC uses a 10 percent discount rate.
- b. ABC uses a 7 percent discount rate.
- c. ABC uses a 4 percent discount rate.
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Mario Kat, Inc plans a new project. Calculate its IRR. Assume that its initial after tax cost is $5,000,000 and it is expected to provide after-tax operating cash flows of ($1,800,000) in year 1, $2,900,000 in year 2, $2,700,000 in year 3 and $2,300,000 in year 4?
Answer each independent question, (a) through (e), below.
a. Project B costs $10,000 and will generate after-tax cash inflows of $900 in year 1, $2,400 in year 2, $4,300 in year 3, $3,400 in year 4, and $4,300 in year 5. What is the payback period (in years) for this investment assuming that the cash inflows occur evenly throughout the year? (Round your answer to 2 decimal places.)
b. Project C costs $10,000 and will generate net cash inflows of $4,750 before taxes for 5 years. The firm uses straight-line depreciation with no salvage value and is subject to a 20% tax rate. What is the payback period under the assumption that all cash inflows occur evenly throughout the year? (Round your answer to 2 decimal places.)
2.) Cash flows for two different investment projects are given in the Chart.
Cash flows for two investments.
Project / Year
0
1
2
3
Project A
-2500
1000
1500
1000
Project B
-2500
-1000
2500
2000
Calculate the net present values of the projects by assuming the desired profit rate as 10%.
Chapter 3 Solutions
Principles Of Taxation For Business And Investment Planning 2020 Edition
Ch. 3 - Does the NPV of future cash flows increase or...Ch. 3 - Explain the relationship between the degree of...Ch. 3 - Does the after-tax cost of a deductible expense...Ch. 3 - Prob. 4QPDCh. 3 - Prob. 5QPDCh. 3 - Prob. 6QPDCh. 3 - Prob. 7QPDCh. 3 - Which type of tax law provision should be more...Ch. 3 - In the U.S. system of criminal justice, a person...Ch. 3 - Identify two reasons why a firms actual marginal...
Ch. 3 - Prob. 11QPDCh. 3 - Prob. 12QPDCh. 3 - Prob. 1APCh. 3 - Prob. 2APCh. 3 - Prob. 3APCh. 3 - Use a 5 percent discount rate to compute the NPV...Ch. 3 - Consider the following opportunities: Opportunity...Ch. 3 - Prob. 6APCh. 3 - Refer to the income tax rate structure in the...Ch. 3 - Prob. 8APCh. 3 - Company N will receive 100,000 of taxable revenue...Ch. 3 - Prob. 10APCh. 3 - Investor B has 100,000 in an investment paying 9...Ch. 3 - Firm E must choose between two alternative...Ch. 3 - Company J must choose between two alternate...Ch. 3 - Firm Q is about to engage in a transaction with...Ch. 3 - Corporation ABC invested in a project that will...Ch. 3 - Prob. 16APCh. 3 - Investor W has the opportunity to invest 500,000...Ch. 3 - Prob. 18APCh. 3 - Prob. 19APCh. 3 - Prob. 20APCh. 3 - Prob. 21APCh. 3 - Prob. 1IRPCh. 3 - Firm V must choose between two alternative...Ch. 3 - Prob. 3IRPCh. 3 - Refer to the facts in problem 3. Company WB is...Ch. 3 - Prob. 5IRPCh. 3 - Prob. 6IRPCh. 3 - Prob. 7IRPCh. 3 - Prob. 8IRPCh. 3 - Prob. 9IRPCh. 3 - Prob. 1TPCCh. 3 - Firm D is considering investing 400,000 cash in a...
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- Prominent Sdn Bhd invested in two projects, project Alpha and project Beta. The projects areindependent of each other. The following schedule shows the cash flows for each project. Year Project Alpha Project Beta 0 -10,000 -10,000 1 5,000 1,000 2 4,000 2,000 3 2,000 2,000 4 2,000 3,000 5 1,000 6,000 The following schedule shows the profit for each project. Year Project Alpha Project Beta 0 0 0 1 2,000 1,000 2 2,000 1,000 3 2,000 2,000 4 2,000 2,000 5 2,000 4,000 The discount rate is 10%.Questions:a) Appraise the projects using the Accounting Rate of Return. b) Appraise the projects using the Payback Period. c) Appraise the projects using the Net Present Value. Note: Please state all relevant formulas in your appraisalarrow_forwardProject B cost $5,000 and will generate after-tax net cash inflows of $500 in year one, $1,200 in year two, $2,000 in year three. $2,500 in year four, and $2,000 in year five. What is the NPV using 8% as the discount rate? For further instructions on net present value in Excel, see Appendix C.arrow_forwardFinancial Manager of Agusta Company is considering two projects (project A and project H), which have cash flows as follows: Year Cash Flow of Project A (in $) Cash Flow of Project H (in $) 0 -100 -100 1 10 70 2 60 50 3 80 20 Agusta Company’s cost of capital is 10 percent. Calculate payback, NPV, IRR, and MIRR for both projects.arrow_forward
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