1. JGF, Inc. sold its machinery for $100,000. They are in 35% tax bracket. Tell us what the after tax cash flow after each transactions is:
a) Book Value= $ 140,000
b) Book Value= $75,000
2. Ma’s Cookie Company has a very popular brand “Chip Munk.” They are considering to introduce another brand named: “Missy Crumbs.” Market research showed that Missy Crumbs brand is going to take away $300,000 worth of sales from Chip Munk brand. Further research revealed that it is common practice for competing cookie companies to introduce new brands to compete with each other. Would you consider $300,000 loss of revenue for Chip Munk as a relevant cost consideration for the proposed brand Missy Crumbs?
Answer to Question 1:
Part a:
After-tax Cash Flow = Salvage Value - (Salvage Value - Book
Value) * Tax Rate
After-tax Cash Flow = $100,000 - ($100,000 - $140,000) * 0.35
After-tax Cash Flow = $100,000 + $14,000
After-tax Cash Flow = $114,000
Part b:
After-tax Cash Flow = Salvage Value - (Salvage Value - Book
Value) * Tax Rate
After-tax Cash Flow = $100,000 - ($100,000 - $75,000) * 0.35
After-tax Cash Flow = $100,000 - $8,750
After-tax Cash Flow = $91,250
1. JGF, Inc. sold its machinery for $100,000. They are in 35% tax bracket. Tell us what the...
Ma’s Cookie Company has a very popular brand “Chip Munk.” They are considering to introduce another brand named: “Missy Crumbs.” Market research showed that Missy Crumbs brand is going to take away $300,000 worth of sales from Chip Munk brand. Further research revealed that it is common practice for competing cookie companies to introduce new brands to compete with each other. Would you consider $300,000 loss of revenue for Chip Munk as a relevant cost consideration for the proposed brand...