Week 10 Questions
b. Assuming that the company uses straight-line depreciation for book purposes and accelerated depreciation for tax purposes show the income statement reported to the stockholders. What is the after-tax operating cash flow under these circumstances?
5. Anew machine costing $100000 is expected to save the McKaig Brick Company $15000 per year for 12 years before depreciation and taxes. The machine will be depreciated on a straight-line basis for a 12-year period to an estimated salvage value of $0. The firms marginaltaxrateis40percent.Whataretheannualnet cash flows associated with the purchase of this machine? Also compute the net investment (NINV) for this project.
6. The Jacob Chemical Company is considering building a new potassium sulfate plant. The following cash outlays are required to complete the plant:
Year Cash Outlay
7. The Taylor Mountain Uranium Company currently has annual cash revenues of $1.2 million and annual cash expenses of $700000. Depreciation amounts to $200000 per year. These figures are expected to remain constant for the foreseeable future (at least 15 years). The firms marginal tax rate is 40 percent. A new high-speed processing unit costing $1.2 million is being considered as a potential investment designed to increase the firms output capacity. This new piece of equipment will have an estimated usable life of 10 years and a $0 estimated salvage value. If the processing unit is bought Taylors annual revenues are expected to increase to $1.6 million and annual expenses (exclusive of depreciation) will increase to $900000. Annual depreciation will increase to $320000. Assume that no increase in net working capital will be required as a result of this project. Compute the projects annualnetcashflowsforthenext10years assuming that the new processing unit is purchased. Also compute the net investment (NINV) for this project.