Determine (quantify) how much, if any, costs should be included in cash estimations for a capital expenditure analysis for the following situations. Explain your answers. EACH SITUATION IS INDEPENDENT OF THE OTHERS. If you can, use Excel spreadsheet to show the formula.
Keystone Cops, a consulting firm, is assisting in a capital spending project. They have billed $50,000 so far, and if this project is approved billings during its 3 year life will be $25,000 per year.
If approved, a $1,000,000 capital project will be financed with 50% debt at an annual interest rate of 10%. The company's tax rate is 40%.
A presently owned but unused building would be used for a capital project having an 8 year life. The building has a book value of $2,400,000 with an 8 year remaining depreciable life, and it has an immediate sale value to a third party of $3,000,000. The company tax rate is 40% and it uses straight line depreciation for both taxes and book accounting.
Cash estimations for a capital expenditure analysis is examined.