Reference no: EM132679323

Problem 1: Equipment with a book value of $5,000 will be sold at the end of a project for a salvage value of $10,000. The tax rate is 25%. What is the tax effect resulting from the profit or loss from the sale of the equipment (where a negative number means tax is payable and a positive number means that there is a tax shield)?

Select one:

a. $1250

b. $-1250

c. $-2500

d. $2500

Problem 2: A project will incur $700 in shutdown costs the year after the completion of the project. The tax rate is 40%. What is the tax shield resulting from these tax-deductible shutdown costs (where a negative number means a cash outflow and a positive number means an incremental cash inflow)?

Select one:

a. $-280

b. $280

c. $240

d. $-240

Problem 3: A share is expected to pay an annual dividend of $2.42 next year, and this dividend is then expected to grow at a constant rate of 2.2% p.a. in perpetuity. If the required rate of return is 11.2% p.a., what is the value of the share?

Select one:

a. $21.61

b. $23.71

c. $26.89

d. $27.48