Reference no: EM13878348
Truman Industries is considering an expansion. The necessary equipment would be purchased for $9 million, and the expansion would require an additional $1 million investment in net operating working capital. The tax rate is 40%.
a. What is the initial investment outlay? Round your answer to the nearest cent. Write out your answer completely. For example, 13 million should be entered as 13,000,000.
$ _____________
b. The company spent and expensed $20,000 on research related to the project last year. Would this change your answer? Explain.
I. No, last year's expenditure is considered a sunk cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis.
II. Yes, the cost of research is an incremental cash flow and should be included in the analysis.
III. Yes, but only the tax effect of the research expenses should be included in the analysis.
IV. No, last year's expenditure should be treated as a terminal cash flow and dealt with at the end of the project's life. Hence, it should not be included in the initial investment outlay.
V. No, last year's expenditure is considered an opportunity cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis.
c. The company plans to use a building it owns to house the project. The building could be sold for $3 million after taxes and real estate commissions. How would that fact affect your answer?
The potential sale of the building represents an opportunity cost of conducting the project in that building.
I. Therefore, the possible after-tax sale price must be charged against the project as a cost.
II. The potential sale of the building represents an opportunity cost of conducting the project in that building. Therefore, the possible before-tax sale price must be charged against the project as a cost.
III. The potential sale of the building represents an externality and therefore should not be charged against the project.
IV. The potential sale of the building represents a real option and therefore should be charged against the project.
V. The potential sale of the building represents a real option and therefore should not be charged against the project.
|
Magnitude of the resultant force
: If the magnitude of the resultant force is to be 9 kN directed along the positive x axis, determine the magnitude of force T acting on the eyebolt and its angle?
|
|
Determine whether vacutech should purchase the new pump
: Determine whether VacuTech should purchase the new pump by calculating the net present value (NPV) at January 1, 2013, of the estimated after-tax cash flows that would result from its acquisition.
|
|
How will the tax affect a firm''s short-run cost curves
: Suppose the government imposes a $1 tax on every unit of a good sold. How will the tax affect a firm's short-run cost curves? Its short-run output?
|
|
After tax salvage value
: Kennedy Air Services is now in the final year of a project. The equipment originally cost $22 million, of which 75% has been depreciated. Kennedy can sell the used equipment today for $5.5 million, and its tax rate is 40%. What is the equipment's aft..
|
|
About expansion-investment in net operating working capital
: Truman Industries is considering an expansion. The necessary equipment would be purchased for $9 million, and the expansion would require an additional $1 million investment in net operating working capital. The tax rate is 40%. What is the initial i..
|
|
Identify a labor law that is specific to south carolina
: Research and identify a labor law that is specific to south carolina. Share a brief summary of the law with us and discuss why you believe this law is or is not important to the employer-employee relationship
|
|
Companys operation by making significant investments
: Company X intends to expand the company's operation by making significant investments in several opportunities available to the group. Accordingly, the group has identified a need for additional financing in preferred and new common stock and new bon..
|
|
What firm long-run average and marginal cost curve look like
: Suppose no economies or diseconomies of scale exist in a given industry. What will the firm's long-run average and marginal cost curves look like? Would you expect firms of different sizes to be able to compete successfully in such an industry?
|
|
How would you treat youths who do not respond to the rules
: There are a number of stages in the process that must be done properly to ensure a juvenile is appropriately treated. How would you treat youths who do not respond to the rules of a prescribed treatment method
|