CH 10 Homework

Bi-Lo Traders is considering a project that will produce sales of $37,900 and have costs of $22,100. Taxes will be $3,900 and the depreciation expense will be $2,200. An initial cash outlay of $1,800 is required for net working capital. What is the project's operating cash flow?

$11,900

A gym owner is considering opening a location on the other side of town. The new facility will cost $1.55 million and will be depreciated on a straight-line basis over a 20-year period. The new gym is expected to generate $575,000 in annual sales. Variable costs are 41 percent of sales, the annual fixed costs are $93,700, and the tax rate is 21 percent. What is the operating cash flow?

$210,260

You own a house that you rent for $1,475 per month. The maintenance expenses on the house average $275 per month. The house cost $234,000 when you purchased it 4 years ago. A recent appraisal on the house valued it at $256,000. If you sell the house you will incur $20,480 in real estate fees. The annual property taxes are $3,250. You are deciding whether to sell the house or convert it for your own use as a professional office. What value should you place on this house when analyzing the option of using it as a professional office?

$235,520

A company purchased an asset for $3,300,000 that will be used in a 3-year project. The asset is in the 3-year MACRS class. The depreciation percentage each year is 33.33 percent, 44.45 percent, and 14.81 percent, respectively. What is the book value of the equipment at the end of the project?

$244,530

The Lumber Yard is considering adding a new product line that is expected to increase annual sales by $307,000 and expenses by $208,000. The project will require $117,000 in fixed assets that will be depreciated using the straight-line method to a zero book value over the 8-year life of the project. The company has a marginal tax rate of 34 percent. What is the depreciation tax shield?

$4,973

Bennett Company has a potential new project that is expected to generate annual revenues of $259,400, with variable costs of $142,800, and fixed costs of $60,400. To finance the new project, the company will need to issue new debt that will have an annual interest expense of $23,000. The annual depreciation is $24,600 and the tax rate is 21 percent. What is the annual operating cash flow?

$49,564

You have calculated the pro forma net income for a new project to be $46,290. The incremental taxes are $23,100 and incremental depreciation is $17,160. What is the operating cash flow?

$63,450

A company is evaluating a new 4-year project. The equipment necessary for the project will cost $3,200,000 and can be sold for $685,000 at the end of the project. The asset is in the 5-year MACRS class. The depreciation percentage each year is 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, and 11.52 percent, respectively. The company's tax rate is 21 percent. What is the aftertax salvage value of the equipment?

$657,272