In capital budgeting analysis, a proposed project is typically evaluated based on cashflows. Since depreciation is non-cash expense, it is irrelevant in capital budgeting analysis. Is the statement true or false? Explain
Question: Richard Corporation's new project calls for an investment of $10,000. It has an estimated life of 10 years. The IRR has been calculated to be 15%. If cashflows are evenly distributed and the taxrate is 40%, what is the annual before taxcash flow each year? (Assume depreciation is a negligible amount.)
A) How would not having to pay taxes impact our future cashflows? Would the depreciationtax shield offset the actual tax cost? How would this impact a project's Net Profit Value (NPV)?
B) In what ways do operating risk and financial risk impact the required return (cost of capital) of a potential project?
A project requires an initial investment of $100,000 and is expected to produce a cash inflow before tax of $26,000 per year for 5 years. Company (A) has substantial accumulated tax losses and is unlikely to pay taxes in the foreseeable future. Company (B) pays corporatetaxes at a rate of 35% and can depreciate the investment f
New asset $400,000
salvage value 30,000
old equpiment tax-basis 60,000
savings first three years @ 120,000
fourth year 90,000
after-tax cost 10%
A. What is the present value of the depreciationtax shield for the new asset for
A machine can be purchased for $ 10,500, including transportation charges. But installation costs will require $1,500 more. The machine is expected to last four years and produce annual cash revenues of $6,000. Annual cash operating expenses are expected to be $2,000, with depreciation of $3,000 per year. the firm has a 30 perce
The Shrieves Corporation has $10,000 that it plans to invest in marketable securities. It is choosing among AT&T Bonds, which yield 7.5%, state of Florida muni bonds, which yield 5%, and AT & T preferred stock , with a dividend yield of 6%. Shrieves' corporatetax is rate is 35%, and 70% of the dividends received are tax
Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $20,000 and will be depreciated in an asset class which carries a CCA rate of 30 percent. It will be sold for scrap metal after 3 years for $5,000. The grill will have no effect on revenues but will save Johnny's $10,000 in energy expen
A cost-cutting project will decrease costs by $48,500 a year. The annual depreciation on the project's fixed assets will be $11,300 and the taxrate is 34 percent. What is the amount of the change in the firm's operating cash flow resulting from this project?