Assume all operating expenses and all operating income are paid andreceived at the end of each respective year. You have organized yourcompany as a sole proprietorship, so you will pay 20 percent taxes onthe earnings of the firm.You are planning to quit the business at the end of the third year, atwhich time you will sell the equipment for $50,000. When you close thebusiness, you will recover the inventory, cash register cash, and pay offyour accounts payable.How much tax would be due on the sale of the machine when yousell it at the end of the third year? (Note: I am not looking for thetotal tax due in the third year, just the taxes related to the sale ofthe machine.)O A. $6,000O B. $10,000O C. $8,880O D. $2,000O E. Something Else You are considering starting a new doughnut shop in the Prince KuhioMall. You wish to complete a cash flow statement to be used for capitalbudgeting purposes. You will have to purchase $80,000 of equipmentwith cash you have saved to manufacture the doughnuts. You willpurchase the equipment on the day you start the business. You willdepreciate the equipment using 3-year straight-line depreciation to asalvage value of $20,000.You will need to have $20,000 of inventory and you will need to have$5,000 in cash for the cash registers. You will need to have the inventoryand cash in place the day you start the business and it will remain inplace throughout the life of the business. You will owe your suppliers$5,000 at all times, beginning the day that you start the business andcontinuing through the life of the business.Based on your sales estimate, you believe that you will be able to sell$1,000,000 of doughnuts per year. You have estimated labor costs to be$200,000 for the year and it will cost $100,000 per year to rent the spacein the Mall (rent and labor will be paid at the end of the year). The cost ofthe ingredients to make the doughnuts will be $250,000 per year.Assume all operating expenses and all operating income are paid andreceived at the end of each respective year. You have organized yourcompany as a sole proprietorship, so you will pay 20 percent taxes onthe earnings of the firm.You are planning to quit the business at the end of the third year, at

In any business, the tax amount is to be calculated wisely. The tax are the necessary obligations to…

Answered: payable. How much tax would be due on…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 21P

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Your neighborhood laundromat is for sale and a friend is considering investing in this business. Your friend has asked for your financial advice regarding this endeavor. For the business alone and no other assets (such as the building and land), the purchase price is $250,000. The net cash flows for the project are $30,000 per year for the next 5 years. The plan is to borrow the money for this investment at 6%. You will need to submit a presentation sharing your recommendation and you must address the following questions:Part A: Calculate the Net Present Value and Payback Period: What is the net present value of this project? Calculate the simple payback period for this project. Your desired payback period is 5 years. How long is the payback period for this project? Use the following template to complete the Unit 4 Excel spreadsheet (IP): Unit 4 IP Assignment Template Part B: Evaluate the investment and provide calculations for an alternative deal: How would you evaluate this…
You have an opportunity to acquire a property from First Capital Bank. The bank recently obtained the property from a borrower who defaulted on his loan. First Capital is offering the property for $200,000. If you buy the property, you believe that you will have to spend (1) $10,500 on various acquisition related expenses and (2) an average of $2,000 per month during the next 12 months for repair costs, and so on, in order to prepare it for sale. Because First Capital Bank would like to sell the property as soon as possible, it is willing to provide $180,000 in financing at 4.25 percent interest for 12 months payable monthly (interest only). Your market research indicates that after you repair the property, it may sell for about $225,000 at the end of one year. Furthermore, you will probably have to pay about $3,000 in fees and selling expenses in order to sell the property at that time. If you wanted to earn a 20 percent return compounded monthly, do you believe that this would be a…
You have an opportunity to acquire a property from First Capital Bank. The bank recently obtained the property from a borrower who defaulted on his loan. First Capital is offering the property for $200,000. If you buy the property, you believe that you will have to spend (1) $10,500 on various acquisition-related expenses and (2) an average of $2,000 per monthduring the next 12 months for repair costs, etc., in order to prepare it for sale. Because First Capital Bank would like to sell the property as soon as possible, it is willing to provide $180,000 in financing at 8 percent interest for 12 months payable monthly (interest only). Your market research indicates that after you repair the property, it may sell for about $225,000 at the end of one year. Furthermore, you will probably have to pay about $3,000 in fees and selling expenses in order to sell the property at that time. If you wanted to earn a 20 percent return compounded monthly, do you believe that this would be a good…
‏You are the owner of a building materials outlet, and you are considering adding a garden supplies section to your store. The cost of the expansion will be $1.5 million, to be depreciated over its 4-year life, using straight line depreciation to an expected salvage value of $500,000 at the end of the 4th year. To finance this investment, you will borrow $800,000 using a four- year balloon-payment bank loan (only interest paid for 4 years, the principal due at the end of the 4th year) with an interest rate of 10%. The garden supplies are expected to generate revenues of $650,000 in the 1st year, $ 700,000 in the 2nd year, $750,000 in the 3rd and 4th years. The expenses of operating the garden supplies section are expected to be 40% of revenues each year and the tax rate is 40%. Working capital requirements are expected to be 10% of revenues (made at the beginning of each period, but not debt financed beyond the initial $800,000 loan). Your cost of equity is 13%, and your cost of…
You have an opportunity to acquire a property from First Capital Bank. The bank recently obtained the property from a borrower who defaulted on his loan. First Capital is offering the property for $218,000. If you buy the property, you believe that you will have to spend (1) $10,800 on various acquisition-related expenses and (2) an average of $2,300 per month during the next 12 months for repair costs, and so on, in order to prepare it for sale. Because First Capital Bank would like to sell the property as soon as possible, it is willing to provide $198,000 in financing at 4.25 percent interest for 12 months payable monthly (interest only). Your market research indicates that after you repair the property, it may sell for about $248,000 at the end of one year. Furthermore, you will probably have to pay about $3,300 in fees and selling expenses in order to sell the property at that time. Required: a. If you wanted to earn a 20 percent returi compounded monthly, do you believe that this…
An investor is considering the acquisition of a "distressed property" which is on Northlake Bank's REO list. The property is available for $200,800 and the investor estimates that he can borrow $160,000 at 4.5 percent interest and that the property will require the following total expenditures during the next year: Inspection Title search Renovation Landscaping Loan interest Insurance Property taxes Selling expenses Required: a. The investor is wondering what such a property must sell for after one year in order to earn a 20 percent return (IRR) on equity. b. The lender is now concerned that if the property does not sell, investor may have to carry the property for one additional year. He believes that he could rent it (starting in year 2) and realize a net cash flow before debt service of $1,440 per month. However, he would have to make an additional $7,440 in interest payments on his loan during that time, and then sell. What would the price have to be at the end of year 2 in order…
A corporation is considering purchasing a new plant asset. The asset will cost $30,000. The corporation requires a 10% return on similar investments. The corporation plans to use the asse for 4 years and then sell it for the salvage value. The estimated salvage value of the asset in 4 years is $5,000. The corporation estimates that if purchased the new asset will provide addition net cash flows of $9,000 each year for 4 years (assume the cash flows occur at the end of the year): Calculate the net present value (you must include the calculation in order to receive credit) Should the business purchase the asset?
Barbara Thompson is considering the purchase of a piece of business rental property containing stores and offices at a cost of $350,000. Barbara estimates that annual receipts from rentals will be $55,000 and that annual disbursement. other than income taxes will be about $18,000. The property is expected to appreciate at the annual rate of 5%. Barbara expects to retain the property for 20 years once it is acquired. Then it will be depreciated on the basis of the 39-year real-property class (MACRS), assuming that the property would be placed in service on January 1.Barbara's marginal tax rate is 30%, and her MARR is 10%. What would be the minimum annual total of rental receipts that would make the investment break-even'?
Your neighborhood laundromat is for sale and a friend is considering investing in this business. Your friend has asked for your financial advice regarding this endeavor. For the business alone and no other assets (such as the building and land), the purchase price is $250,000. The net cash flows for the project are $30,000 per year for the next 5 years. The plan is to borrow the money for this investment at 5%. What is the net present value of this project? Calculate the simple payback period Your desired payback period is 5 years. How long is the payback period. How would you evaluate this investment? What would be a good price at which to purchase this business?
You are the owner of a book store and you are considering adding a coffee bar to your store. The cost of the expansion will be $ 1 million, and you expect to depreciate it over the coffee bar’s four year life, using straight line depreciation to an expected salvage value of $ 500,000 at the end of the fourth year. You will also borrow $ 400,000 from a bank, using a four year balloon-payment loan (only interest paid for four years, the principal is due at the end of the fourth year) with an interest rate of 10%. The coffee bar is expected to generate $ 500,000 in revenues in the first year, $ 600,000 in revenues in the second year, $ 550,000 in the third year and $ 500,000 in the fourth year. The expenses of operating the bar are expected to be 40% of revenues each year and the tax rate is 35%. Estimate the return on equity on this investment each year for the next four years. If your cost of equity is 12%, would you invest in this coffee bar. If your cost of equity is 12%, estimate…
Blossom, Inc. is considering the purchase of a warehouse directly across the street from its manufacturing plant. Blossom currently warehouses its inventory in a public warehouse across town. Rent on the warehouse and delivering and picking up inventory cost Blossom $48960 per year. The building will cost Blossom $459000. Blossom will depreciate the building for 20 years. At the end of 20 years, the building will have a $127500 salvage value. Blossom’s required rate of return is 11%. suggest whether he should buy warehouse
XYZ is evaluating a project that would require the purchase of a piece of equipment for $560,000 today. During year 1, the project is expected to have relevant revenue of $761,000, relevant costs of $205,000, and relevant depreciation of $130,000. XYZ would need to borrow $560,000 today to pay for the equipment and would need to make an interest payment of $38,000 to the bank in 1 year. Relevant net income for the project in year 1 is expected to be $337,000. What is the tax rate expected to be in year 1? O A rate less than 16.43% or a rate greater than 52.83% O A rate equal to or greater than 16.43% but less than 21.92% O A rate equal to or greater than 21.92% but less than 24.67% O A rate equal to or greater than 24.67% but less than 35.22% O A rate equal to or greater than 35.22% but less than 52.83%

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payable. How much tax would be due on the sale of the machine when you sell it at the end of the third year? (Note: I am not looking for the total tax due in the third year, just the taxes related to the sale of the machine.) A. $6,000 B. $10,000 C. $8,880 O D. $2,000 E. Something Else