The after-tax net cash flow of a project requires depreciation to be treated both as an...
The after-tax net cash flow of a project requires depreciation to be treated both as an expense in the income statement and as a positive cash flow in the cash flow statement.
Question 15 options:
| True | |
| False |
Homework Answers
Answer - True
EXPLANATION - Depreciation reduces taxes , which can increase net income. Thus , this results in a higher amount of cash in the cash flow statement, thereby signaling a positive cash flow, while it is also treated as an expense in the income statement, as there is loss of value of some fixed asset.
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The after-tax net cash flow of a project requires depreciation
to be treated both as an...
The after-tax net cash flow of a project requires depreciation to be treated both as an...
The after-tax net cash flow of a project requires depreciation to be treated both as an expense in the income statement and as a positive cash flow in the cash flow statement. True False
After-Tax Cash Flows For each of the following independent situations, compute the net after-tax cash flow...
After-Tax Cash Flows For each of the following independent situations, compute the net after-tax cash flow amount by subtracting cash outlays for operating expenses and income taxes from cash revenue. The cash outlay for income taxes is determined by applying the income tax rate to the cash revenue received less the cash and noncash (depreciation) expenses. B Cash revenue received $74,000 $430,000 $210,000 Cash operating expenses paid 48,000 240,000 130,000 Depreciation on tax return 11,000 28,000 18,000 A Income tax...
4. Consider a ten-year project with an after-tax cash flow of $11 in year t=1. You...
4. Consider a ten-year project with an after-tax cash flow of $11 in year t=1. You expect a constant growth rate of g=10% for the next ten years. The initial outflow is $100 in year t=0. (a) What is the internal rate of return (IRR) on the project? (b) According to the IRR rule, would you invest in this project at a cost of capital equal to 5%? (c) A project can have only one NPV but multiple IRRs. True...
After-Tax Cash Flows For each of the following independent situations, compute the net after-tax cash flow...
After-Tax Cash Flows For each of the following independent situations, compute the net after-tax cash flow amount by subtracting cash outlays for operating expenses and income taxes from cash revenue. The cash outlay for income taxes is determined by applying the income tax rate to the cash revenue received less the cash and noncash (depreciation) expenses. A B C Cash revenue received $110,000 $525,000 $275,000 Cash operating expenses paid 64,000 385,000 165,000 Depreciation on tax return 14,000 32,000 25,000 Income...
The blank has the options (net income or net cash flow) 3. Net cash flow You...
The blank has the options (net income or net cash flow)
3. Net cash flow You are Olivia, a financial analyst who works for an investment bank in downtown Denver, Colorado You are analyzing the current cash condition of CansAndString Telecomm. You've collected the following information from the company's financial reports: • The company just reported net sales of $5,000,000. Assume that there are no noncash sales. • The operating costs (excluding depreciation and amortization) are 65% of the company's...
Question 7 (1 point) Depreciation is an expense that has no effect on cash flow. True...
Question 7 (1 point) Depreciation is an expense that has no effect on cash flow. True False Question 8 (1 point) The Statement of Cash Flows includes both cash and cash equivalents when reporting cash flows True O False Question 9 (1 point) 'Investing activities occur when the owners of the business invest more cash in the business. True False Question 10 (1 point) Information to prepare the statement of cash flows usually comes from comparative balance sheets and the...
A project that costs $1 million will yield annual after-tax operating cash flow (including depreciation tax...
A project that costs $1 million will yield annual after-tax operating cash flow (including depreciation tax shields) of $500,000 for the next five years. The firm has a D/E ratio of 0.5 and after-tax cost of equity and debt of 20% and 10%, respectively. As this project is slightly riskier than the firm's normal operations, it is decided that an adjustment factor of +3% will be added to the discount rate for the project. What is this project's NPV?
Declining Balance Depreciation 12-18 A firm is considering the following investment project: Before-Tax Cash Flow (thousands)...
Declining Balance Depreciation 12-18 A firm is considering the following investment project: Before-Tax Cash Flow (thousands) Year 12 -$1000 0 500 1 340 2 244 3 100 4 100 5 125 Salvage value The project has a 5-year useful life with a $125,000 salvage value, as shown. Double declining balance depreciation will be used, assuming the $125,000 salvage value. The combined income tax rate is 24%. If the firm requires a 10% after-tax rate of return, should the project be...
Depreciation expense is recorded as an expense and therefore a reduction of net income on the...
Depreciation expense is recorded as an expense and therefore a reduction of net income on the Company's income statement, but is considered a non-cash expense for purposes of determining cash flow from operations on the statement of cash flows. True or False?
a. Project A costs $5,500 and will generate annual after-tax net cash inflows of $2,600 for...
a. Project A costs $5,500 and will generate annual after-tax net
cash inflows of $2,600 for 5 years. What is the payback period for
this investment under the assumption that the cash inflows occur
evenly throughout the year? (Round your answer to 2 decimal
places.)
b. Project B costs $5,500 and will generate after-tax cash
inflows of $660 in year 1, $1,400 in year 2, $2,400 in year 3,
$2,700 in year 4, and $2,400 in year 5. What is...
The after-tax net cash flow of a project requires depreciation to be treated both as an expense in the income statement and as a positive cash flow in the cash flow statement. True False
After-Tax Cash Flows For each of the following independent situations, compute the net after-tax cash flow amount by subtracting cash outlays for operating expenses and income taxes from cash revenue. The cash outlay for income taxes is determined by applying the income tax rate to the cash revenue received less the cash and noncash (depreciation) expenses. B Cash revenue received $74,000 $430,000 $210,000 Cash operating expenses paid 48,000 240,000 130,000 Depreciation on tax return 11,000 28,000 18,000 A Income tax...
The blank has the options (net income or net cash flow)
3. Net cash flow You are Olivia, a financial analyst who works for an investment bank in downtown Denver, Colorado You are analyzing the current cash condition of CansAndString Telecomm. You've collected the following information from the company's financial reports: • The company just reported net sales of $5,000,000. Assume that there are no noncash sales. • The operating costs (excluding depreciation and amortization) are 65% of the company's...
Question 7 (1 point) Depreciation is an expense that has no effect on cash flow. True False Question 8 (1 point) The Statement of Cash Flows includes both cash and cash equivalents when reporting cash flows True O False Question 9 (1 point) 'Investing activities occur when the owners of the business invest more cash in the business. True False Question 10 (1 point) Information to prepare the statement of cash flows usually comes from comparative balance sheets and the...
Declining Balance Depreciation 12-18 A firm is considering the following investment project: Before-Tax Cash Flow (thousands) Year 12 -$1000 0 500 1 340 2 244 3 100 4 100 5 125 Salvage value The project has a 5-year useful life with a $125,000 salvage value, as shown. Double declining balance depreciation will be used, assuming the $125,000 salvage value. The combined income tax rate is 24%. If the firm requires a 10% after-tax rate of return, should the project be...
a. Project A costs $5,500 and will generate annual after-tax net
cash inflows of $2,600 for 5 years. What is the payback period for
this investment under the assumption that the cash inflows occur
evenly throughout the year? (Round your answer to 2 decimal
places.)
b. Project B costs $5,500 and will generate after-tax cash
inflows of $660 in year 1, $1,400 in year 2, $2,400 in year 3,
$2,700 in year 4, and $2,400 in year 5. What is...
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