Question

* University Module Sor * Automatica x C Get Homer 355.000+ x G The dudley ard.uvi.edu/bbcswebdav/pid-438569-dt-content-rid-18874208_1/courses/ACC440_FallSemester 2019_1_87285/CB-1.pdf p or me ang 000; this price should remain stable over the net sbc years. The plant is kely to be kept for at least ten more years C Certain nonrecurring market research studies and sales promotion activities will amount to a cost of $500,000 at the end of year 1. The entire amount is deductible in full for income tax purposes in the year of expenditure. D. Additions to working capital will require 5200,000 at the outset and an additional $200,000 at the end of two years. This total is fully recoverable at the end of Six years. E. Net cash inflow from operations before depreciation and income taxes will be $400,000 in years 1 and 2. $600,000 in years 3 through 5, and $100,000 in year 6. The company uses the net present value method in its capital budgeting decisions. Tabulations of differential cash flows are made from year o through year 6. Yearly cash flows are estimated for all items, including capital outlays or recoveries. An applicable discount rate is used to bring all outlays from year 1 through year 6 back to year o f the summation in year is positive, the project is desirable, and vice versa 124. Income tax rates are 36% for ordinary income. Required: Use a net present value analysis to determine whether Dudle should launch the new household product

i uploaded the pictures backward, the second page is actually the first one. i hope thats helps

Answer 1

Answer IWN I Given cost g new special purpose equipment = $900000 As pu Income tax authorities Lol tar purpose new equipment not allow to be written of - Over nine years for tax purpose .: Depreciation per annum $900000 & no tuminal el isposal price cash inflows from lease seneals -$100000 WN-2 $ 600o C fully oleeluctible for Income tax payase ? vongate pice a buildina $ 80000 semains stable once 0 next usine year re At end of year 6th sale ruce - $ 80000 ** Calculation of Net present Value Amount $ ) year =) o 1 2 3 4 5 6 Cashflows byQOBBE 400000 400000 400000 600000 G00000 100000 cashirflow 6000 6000 from Leade Rentals 6000 6000 6000 6000 (GN-2) Less Expenditure 500000 Depeccichen 100000 100000 100000 100000 100000 100000 woung copited 200000 - 400000 80000 net cashflow 200000) (194000) Quooo) 506000 506000 506000 G000 depreciation, Sale valued > building 600000 Recovecoble ericing corele 900006) (194000) (94000) 506000 506000 506000 686000 Resst for@ 36(72000)(69840) (33840) (182160) (189160) (182160) 946960) net cashindow (272000) (263840) (127840) 323840 323640 323840 439 ou Add Depreciation 100000 100000 100000 100000 100000 100000 (27200 0) (163840) (27840) 423840 423840 423840 539040

cash Inylows C272000) (163840) (27840) 423840 423840 424840 539040 Rate of retun , [4123) : 0893 0.797 0.712 0.635 0.567 0.507 127. Lutron] (1122) 6123 ] [124) Net present was valling (272000) (146309) (22188) 301774 269138 240317 273293 (axb) 916025 Not present = present valued cash Inflow - present value of cash outflows = 916025 - 27 2000 value » 644025 . Net present value es positive, Dudley should faunch new product.