Reference no: EM132788463

Questions -

Q1. Parker & Stone, Inc., is looking at setting up a new manufacturing plant in South Park to produce garden tools. The company bought some land 9 years ago for $4 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent these facilities from a competitor instead. If the land were sold today, the company would net $9.6 million. The company wants to build its new manufacturing plant on this land; the plant will cost $12.2 million to build, and the site requires $1,152,000 worth of grading before it is suitable for construction. What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project?

a. $24,099,600

b. $20,648,000

c. $21,800,000

d. $16,433,920

e. $22,952,000

Q2. Consider the following income statement:

Sales $857,656

Costs 557,984

Depreciation 126,900

Taxes 22%

Required -

1. Calculate the EBIT.

2. Calculate the net income.

3. Calculate the OCF.

4. What is the depreciation tax shield?

Q3. Consider an asset that costs $193,600 and is depreciated straight-line to zero over its 11-year tax life. The asset is to be used in a 5-year project; at the end of the project, the asset can be sold for $24,200. If the relevant tax rate is 24 percent, what is the after tax cash flow from the sale of this asset?

a. $45,922.80

b. $18,392.00

c. $41,549.20

d. $308,804.00

e. $43,736.00