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# Cash estimations for a capital expenditure analysis

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.

Problem 1:
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.

Problem 2:
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%.

Problem 3:
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.

#### Solution Summary

Cash estimations for a capital expenditure analysis is examined.

\$2.19