Question

please conplete all parts to the question

2. Incremental costs Initial and terminal cash flow Consider the case of Marston Manufacturing Company: Marston Manufacturing Company is considering a project that requires an investment in new equipment of $3,780,000. Under the new tax law, the equipment is eligible for 100 % bonus depreciation at t 0 so the equipment will be fully depreciated at the time of purchase. Marston estimates that its accounts receivable and inventories need to increase by $720,000 to support the new project, some of which is financed by a $288,000 increase in spontaneous liabilities (accounts payable and accruals). The company's tax rate is 25 %. The after-tax cost of Marston's new equipment is Marston's initial net investment outlay is Suppose Marston's new equipment is expected to sell for $600,000 at the end of its four-year useful life, and at the same time, the firm exp to recover all of its net operating working capital (NOWC) investment. Remember, that under the new tax law, this equipment was fully depreciated at t =0. If the firm's tax rate is 25 % , what is the project's total termination cash flow? $450,000 $582,000 $600,000 $882,000 Grade It Now Save & Continue Continue without saving

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) Data Review View Add-Ins Formulas - 2x 11 A = = = V General A A Wrap Text Merge Merge & Center Center Σ AutoSum : A Fill 2 Sort & m Find & SF 4:0 .00 8. Insert Delete Format $ - % % Number Conditional Format Formatting as Table Styles Cell Styles Clear Select Filter Editing Alignment Cells File Home Insert Page Layout % Cut Calibri Ea Copy Paste Format Painter B I U - D Clipboard Font AX315 - five _ AM AN AO 307 308 Q.1 AP AQ AR AS AT AU AV AW AXI 309 AS IT IS A CASE OF 100% BONUS DEPRECIATION INITIAL AFTER TAX COST OF MACHINE = COST OF MACHINE - DEPRECIATION TAX SHIELD INITIAL AFTER TAX COST = 3780000 - (3780000*25%) = 2835000 310 ANSWER AFTER TAX COST OF NEW EQUIPMENT = 2835000 Q.2 311 312 313 314 315 316 317 318 INITIAL NET INVESTMENT OUTLAY AFTER TAX COST OF NEW EQUIPMENT = ADD : INVENTORY AND ACCOUNTS RECEIVABLES LESS : SPONTANEOUS LIABILITIES INITIAL NET INVESTMENT OUTLAY 2835000 720000 288000 3267000 ANSWER 319 Q.3 TOTAL TERMINAL CASH FLOW AFTER TAX SALVAGE = 600000*(1-0.25) = RECOVERY OF WORKING CAPITAL 720000 - 288000 = TOTAL TERMINAL CASH FLOW 450000 432000 882000 ANSWER 320 321 322 323 324 325 M Red H HPR GMAM EAC MACRS NPV RELEVANT BETA LEVERED REPLACEMENT BOND OPTION TO WAITSTEIN indiffEPS EBIT MI-np-ir_ REPLACEMENTS ferences LEASE STRAIGHT LINE BOJ 130% GI - 0 ODER 1992 * 40 ENG 20-11-2019