Asked by anmol setia on Jul 01, 2024
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Schweinsberg Corporation is considering a capital budgeting project. The project would require an investment of $120,000 in equipment with a 4 year expected life and zero salvage value. The company uses straight-line depreciation and the annual depreciation expense will be $30,000. Annual incremental sales would be $230,000 and annual incremental cash operating expenses would be $180,000. The company's income tax rate is 30% and the after-tax discount rate is 15%. The company takes income taxes into account in its capital budgeting.Assume cash flows occur at the end of the year except for the initial investments.Click here to view Exhibit 14B-1 to determine the appropriate discount factor(s) using table.The net present value of the project is closest to:
A) $22,800
B) $125,664
C) $56,000
D) $5,664
Capital Budgeting
The process of planning and managing a company's long-term investments in projects and assets.
Incremental Sales
Additional sales generated by a particular marketing activity or sales initiative beyond the expected or normal level.
Operating Expenses
Costs associated with the day-to-day functions of a business outside of direct production activities, such as sales, marketing, and general administration.
- Learn the process of calculating net present value (NPV) and its impact on capital budgeting choices.
- Review the implications of incremental cash flows on a project's general practicability.
- Absorb the implications of income taxes on the profitability and cash flows of a project.
Verified Answer
Learning Objectives
- Learn the process of calculating net present value (NPV) and its impact on capital budgeting choices.
- Review the implications of incremental cash flows on a project's general practicability.
- Absorb the implications of income taxes on the profitability and cash flows of a project.
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