What is the annual after tax cash flow

Reference no: EM132086136

Question: Capital Budgeting Problem

George and William Phelps are considering a 6 year project that would require a cash outlay of $80,000 for equipment and an additional $20,000 for working capital that would be released at the end of the project. The equipment would be depreciated evenly over the 6 years and have a salvage value of $8,000 at the end of 6 years. The project would generate before tax annual cash inflows of $28,500. The tax rate is 35% and the company's discount rate is 14%.

Required: 1. What is the annual accounting income?

2. What is the annual after tax cash flow?

3. What is the payback based upon the initial cash outflows?

4. What is the discounted payback based upon the initial cash outflows?

5. What is the simple rate of return based upon the initial cash outflows?

6. What is the net present value?

7. What is the internal rate of return?

8. Would you recommend this project or not? Why?

Reference no: EM132086136

Questions Cloud

What were the equivalent units for conversion costs : The Werner Corporation uses the weighted-average method in its process costing system. The company recorded 24,400 equivalent units for conversion costs.

Critical to coordinate with the firm marketing strategy : Which decisions on the Production and Labor screens are critical to coordinate with the firm's marketing strategy? Why?

Post the balance from the unadjusted trial balance : Wells Technical Institute (WTI), a school owned by Tristana Wells, provides training to individuals who pay tuition directly to the school.

Communication plan benefit management of projects : How does a communication plan benefit management of projects?

What is the annual after tax cash flow : George and William Phelps are considering a 6 year project that would require a cash outlay of $80,000 for equipment and an additional $20,000.

What are the main objectives of change control : What are the main objectives of change control? what are likely outcomes if a change control process is not used?

Many corporations to reevaluate their corporate initiatives : The previous lackluster growth of the economy motivated many corporations to reevaluate their corporate initiatives and seek the advantage of lower labor costs

How will operating income be affected : Westfall Watches has two product lines: Luxury watches and Sporty watches. Income statement data for the most recent year follow.

The marketing emphasis of differentiation strategy : Explain how the marketing emphasis of a low-cost provider differs from the marketing emphasis of a differentiation strategy.

User Account

All Pages