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Question(s) / Instruction(s):

157.     Maryanne Company is contemplating three different proposals for the purchase of some equipment. The relevant data are as follows:

 

 

 

 

Proposal C

Proposal A

Proposal T

 

Cost

 

$180,000

$300,000

$800,000

 

Annual savings of cash operating

 

expenses

$25,000

$50,000

$150,000

 

Terminal salvage value

-0-

-0-

-0-

 

Estimated useful life in years

10

10

10

 

Minimum desired rate of return

12%

12%

12%

 

Method of depreciation

S/L

S/L

S/L

Required:     

     Using net present value analysis, select the best proposal. Ignore income taxes.

LEARNING OBJECTIVES 1 and 5

158.     The 20X0 income statement of Nemo Company included the following:

Sales

 

 

$90,000

 

 

 

Less:

Expenses, excluding depreciation

$40,000

 

 

 

 

Depreciation

 

30,000

 

 

 

 

 

 

 

Income before taxes

 

 

$20,000

 

 

 

 

 

Less:

Income taxes (30%)

$6,000

 

 

 

Net income

 

 

$14,000

 

 

 

Required:

Calculate the total after-tax effect on cash.

159.     Surround Company manufactures high quality entertainment centers. It is a growing company and is, therefore, considering the purchase of some new equipment to help expand production. The following data are relevant to the decision:

          Cost of new equipment     $200,000
          Resulting annual increase in revenue     $70,000
          Additional annual cash expenses     $40,000
          Useful life of equipment     10 years
          Terminal salvage value     -0-
          Depreciation method     S/L
          Tax rate     30%

     Required:

     What is the annual net after-tax cash flow generated by the investment?

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