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Capital Budgeting: Analyzing a New Project

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1.) You work for the Sing Oil Company, which is considering a new project whose data are shown below. What is the project's operating cash flow for Year 1?

Sales revenues, each year $55,000
Depreciation $8,000
Other operating costs $25,000
Interest expense $8,000
Tax rate 35.0%
2) (Comp: 12.1-12.4) Salvage value calculations

2.) Bing Services is now in the final year of a project. The equipment originally cost $20,000, of which 75% has been depreciated. Bing can sell the used equipment today for $6,000, and its tax rate is 40%. What is the equipment's net after-tax salvage value for use in a capital budgeting analysis? Note that if the equipment's final market value is less than its book value, Bing will receive a tax credit as a result of the sale.

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Solution Summary

This solution provides a detailed a computation of the given accounting problem in Excel.

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** Please see the attached file for the complete solution response **

Sales Revenue $55,000
Operating Cost $25,000
Depreciation $8,000
Interest Expense $8,000 ...

Solution provided by:
  • Chartered Accountant (Equivalent to CPA in US), Institute of Charted Accountants of India
  • Bachelor of Commerce, West Bengal University
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