Additional taxable income-income taxes and the net income

Assignment Help Financial Management

Reference no: EM13768114

The R&D of the Advanced Electronics, Inc. (AE) designed a product commissioned by the military, but with applications in commercial markets as well. To manufacture and market the product AE needs to build new manufacturing facilities, and will need an initial investment of $8 million. The company expects to sell 5,000 units annually for the next five years at a price of $2,800 per unit. The expected salvage value of the manufacturing facilities at the end of five years is expected to be $1.9 million, and the facility will be depreciated according to a seven-year MACRS property class. The operating and maintenance costs are estimated to be $1.1 million per year. The manufacturing cost will be $1,200 per unit, and it does not include depreciation. The combined (federal and state) tax rate for AE is 34%, and this project will not change the company’s current marginal tax rate.

Determine the following for the estimated life of this project (5 years):

(a) The additional taxable income, the income taxes, and the net income generated for AE due to undertaking this project.

(b) Whether the project is worth undertaking at a MARR of 12%?

(d) The value of MARR below which the project will be a worthwhile investment if the initial cost will be $9 million, but AE Inc. manages to fetch a selling price of $3,100 per unit?

Reference no: EM13768114

Questions Cloud

Both the cost of debt as the cost of equity : What is the impact of hedging on a firm’s overall cost of capital? Will it affect both the cost of debt as the cost of equity? Explain.

Firm is considering a new product development : Your firm is considering a new product development. an outlay of $90,000 is required for equipment, and an additional net working capital of $5000 is required. the project is expected to have a 4 year life, and the equipment will be depreciated on a ..

Holding a well-diversified portfolio of assets : Explain why a firm needs to hedge if stockholders are holding a well-diversified portfolio of assets?

What is the total cost at time zero of accepting : Your firm is considering a new product development. an outlay of $90,000 is required for equipment, and an additional net working capital of $5000 is required. the project is expected to have a 4 year life, and the equipment will be depreciated on a ..

Additional taxable income-income taxes and the net income : The R&D of the Advanced Electronics, Inc. (AE) designed a product commissioned by the military, but with applications in commercial markets as well. To manufacture and market the product AE needs to build new manufacturing facilities, and will need a..

Addition rule to determine the probability : A department store manager has decided that dress code is necessary for team coherence. Team members are required to wear wither blue shirts or red shirts. There are 9 men and 7 women in the team. On a particular day, 5 men wore blue shirts and 4 oth..

Write a report on overview of alternatives : Your Justification Report assignment, you built up the following sections: Problem Statement, Overview of Alternatives, Criteria, and Methods.

Default risk premium : A company's 5-year bonds are yielding 9.9% per year. Treasury bonds with the same maturity are yielding 5.15% per year, and the real risk-free rate (r*) is 2.65%. The average inflation premium is 2.1%, and the maturity risk premium is estimated to be..

Expected interest rate : The real risk-free rate is 2.25%. Inflation is expected to be 2.35% this year, 4% next year, and then 2.75% thereafter. The maturity risk premium is estimated to be 0.05(t - 1)%, where t = number of years to maturity. What is the yield on a 7-year Tr..

User Account

All Pages