ZuoTi.Pro
Question

Pierre Wineries is evaluating a project that would require an initial investment in equipment of 580.000 and that is expected
business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Answer : Correct option is Option C $37,000 (plus or minus 100)

Calculation of X + Y

Value of X is the relevant operating Cash Flow for year 1

Annual Revenue (A) Given 45000
Annual Cost (B) Given 30000
Depreciation for Year 1 @40% on Cost (C) 80000 * 40% 32000
Earning Before Taxes (D) = (A) - (B) - (C) (17000)
Saving of taxes due to losses (E) 17000 * 50% 8500
Earning After Taxes (F) = (D) + (E) (8500)
Depreciation (Being Non cash Item) (C) 32000
Relevant Operating Cash Flow (F) + (C) 23500

Value of Y ie the relevant operating Cash Flow for year 3

Annual Revenue (A) Given 45000
Annual Cost (B) Given 30000
Depreciation for Year 3 @15% on Cost (C) 80000 * 15% 12000
Earning Before Taxes (D) = (A) - (B) - (C) 3000
Taxes (E) 3000 * 50% 1500
Earning After Taxes (F) = (D) - (E) 1500
Depreciation (Being Non cash Item) (C) 12000
Relevant Operating Cash Flow (F) + (C) 13500

Value of X + Y = 23500 + 13500

= 37,000

0 0
Add a comment
Know the answer?
Add Answer to:
Pierre Wineries is evaluating a project that would require an initial investment in equipment of 580.000...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Fairfax Pizza is evaluating a project that would require an initial investment in equipment of 500,000...

    Fairfax Pizza is evaluating a project that would require an initial investment in equipment of 500,000 dollars and that is expected to last for 7 years. MACRS depreciation would be used where the depreciation rates in years 1, 2, 3, and 4 are 38 percent, 31 percent, 21 percent, and 10 percent, respectively. For each year of the project, Fairfax Pizza expects relevant, incremental annual revenue associated with the project to be 830,000 dollars and relevant, incremental annual costs associated...

  • Fairfax Pizza is evaluating a project that would require an initial investment in equipment of 100,000 dollars and that...

    Fairfax Pizza is evaluating a project that would require an initial investment in equipment of 100,000 dollars and that is expected to last for 5 years. MACRS depreciation would be used where the depreciation rates in years 1, 2, 3, and 4 are 45 percent, 35 percent, 15 percent, and 5 percent, respectively. For each year of the project, Fairfax Pizza expects relevant, incremental annual revenue associated with the project to be 155,000 dollars and relevant, incremental annual costs associated...

  • Question 4 1 point Number Help Fairfax Pizza is evaluating a project that would require an...

    Question 4 1 point Number Help Fairfax Pizza is evaluating a project that would require an initial investment in equipment of 400,000 dollars and that is expected to last for 9 years. MACRS depreciation would be used where the depreciation rates in years 1, 2, 3, and 4 are 38 percent, 34 percent, 19 percent, and 9 percent, respectively. For each year of the project, Fairfax Pizza expects relevant, incremental annual revenue associated with the project to be 456,000 dollars...

  • Middlefield Motors is evaluating project Z. The project would require an initial investment of 76,000 dollars...

    Middlefield Motors is evaluating project Z. The project would require an initial investment of 76,000 dollars that would be depreciated to 6,000 dollars over 6 years using straight-line depreciation. The first annual operating cash flow of 28,000 dollars is expected in 1 year, and annual operating cash flows of 28,000 dollars are expected each year forever. Middlefield Motors expects the project to have an after-tax terminal value of 341,000 dollars in 4 years. The tax rate is 20 percent. What...

  • Middlefield Motors is evaluating project Z. The project would require an initial investment of 57,000 dollars...

    Middlefield Motors is evaluating project Z. The project would require an initial investment of 57,000 dollars that would be depreciated to 9,500 dollars over 6 years using straight-line depreciation. The first annual operating cash flow of 11,000 dollars is expected in 1 year, and annual operating cash flows of 11,000 dollars are expected each year forever. Middlefield Motors expects the project to have an after-tax terminal value of 370,500 dollars in 5 years. The tax rate is 20 percent. What...

  • Pear Orchards is evaluating a new project that will require equipment of $217,000. The equipment will...

    Pear Orchards is evaluating a new project that will require equipment of $217,000. The equipment will be depreciated on a 5-year MACRS schedule. The annual depreciation percentages are 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, and 11.52 percent, respectively. The company plans to shut down the project after 4 years. At that time, the equipment could be sold for $46,300. However, the company plans to keep the equipment for a different project in another state. The tax rate is...

  • Pear Orchards is evaluating a new project that will require equipment of $235,000. The equipment will...

    Pear Orchards is evaluating a new project that will require equipment of $235,000. The equipment will be depreciated on a 5-year MACRS schedule. The annual depreciation percentages are 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, and 11.52 percent, respectively. The company plans to shut down the project after 4 years. At that time, the equipment could be sold for $58,000. However, the company plans to keep the equipment for a different project in another state. The tax rate is...

  • Pear Orchards is evaluating a new project that will require equipment of $241,000. The equipment will...

    Pear Orchards is evaluating a new project that will require equipment of $241,000. The equipment will be depreciated on a 5-year MACRS schedule. The annual depreciation percentages are 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, and 11.52 percent, respectively. The company plans to shut down the project after 4 years. At that time, the equipment could be sold for $61,900. However, the company plans to keep the equipment for a different project in another state. The tax rate is...

  • Middlefield Motors is evaluating project A, which would require the purchase of a piece of equipment...

    Middlefield Motors is evaluating project A, which would require the purchase of a piece of equipment for 373,000 dollars. During year 1, project A is expected to have relevant revenue of 141,000 dollars, relevant costs of 63,000 dollars, and some depreciation. Middlefield Motors would need to borrow 373,000 dollars for the equipment and would need to make an interest payment of 37,300 dollars to the bank in year 1. Relevant net income for project A in year 1 is expected...

  • Middlefield Motors is evaluating project A, which would require the purchase of a piece of equipment...

    Middlefield Motors is evaluating project A, which would require the purchase of a piece of equipment for 386,000 dollars. During year 1, project A is expected to have relevant revenue of 147,000 dollars, relevant costs of 72,000 dollars, and some depreciation. Middlefield Motors would need to borrow 386,000 dollars for the equipment and would need to make an interest payment of 38,600 dollars to the bank in year 1. Relevant net income for project A in year 1 is expected...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT