What is the net incremental tax cash flow

Reference no: EM13273656

A firm is trying to determine whether to replace an existing asset. The proposed asset has a purchase price of $50,000 and has installation costs of $3,000. The asset will be depreciated over its five year life using the straight-line method. The new asset is expected to increase sales by $17,000 and non-depreciation expenses by $2000 annually over the life of the asset. Due to the increase in sales, the firm expects an increase in working capital during the asset's life of $1,500, and the firm expects to be able to sell the asset for $6,000 at the end of its life. The existing asset was originally purchased three years ago for $25,000, has a remaing life of five years, and is being depreciated using the straight-line method. The expected salvage value at the end of the asset's life (i.e., five years from now) is $5000; however, the current sale price of the existing asset is $20,000, and its current book value if $15625. The firm's marginal tax rate is 34 percent and its required rate of return is 12%. What is the net incremental tax cash flow?

a. 13,504
b. 13,761.50
c. 14,824
d. 12,441.50

Reference no: EM13273656

Questions Cloud

Report on religious field research : Discuss any misconceptions you had about the religion you researched - analyze how your prior understanding about this religion was altered (if at all) through your encounter.

What is the current yield on this bond : A $1,000 par value bond has an 8% coupon and pays interest annually. There are 9 years remaining until maturity. The market rate for this and similar bonds is 10%. What is the CURRENT YIELD on this bond?

Calculate the equivalent annual cost of each alternative : Both systems entail $2 million in operating costs; both will be depreciated straight-line to a final value of zero over their useful lives; neither will have any salvage value at the end of its life. The firm's tax rate is 35%, and the discount ra..

What is percentage cost of capital fo rpost-horizon period : After this, the free cash flows are expected to grow at a constant rate of 5%, and the capital structure will stabilize at 45% debt with an interest rate of 6.9%. What is the percentage cost of capital for the post-horizon period?

What is the net incremental tax cash flow : The firm's marginal tax rate is 34 percent and its required rate of return is 12%. What is the net incremental tax cash flow?

What is the annual depreciation expense : An asset cost $200,000 and is classified as a 10-year asset. What is the annual depreciation expense for the first three years under the straightline and the modified accelerated cost recovery systems of depreciation?

What must the risk-free rate be : A stock has an expected return of 13.5 percent, a beta of 1.40, and the expected return on the market is 11.5 percent. What must the risk-free rate be? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g.,..

Total mass of both components in a decaborane or oxygen : The best design for rockets is one in which both fuel materials run out at the same time to minimize excess mass. If the total mass of both components in a decaborane/oxygen rocket must be 1.951E+6g, what mass of liquid oxygen should be used

What is the intensity level of the sound wave : A sound wave from a siren has an intensity of 88.8 W/m2 at a certain point, What is the intensity level of the sound wave due to the ambulance

User Account

All Pages