Asked by

Economist Bonface
on Dec 17, 2024

verifed

Verified

Donayre Corporation is considering a capital budgeting project that would require investing $160,000 in equipment with an expected life of 4 years and zero salvage value. Annual incremental sales would be $450,000 and annual incremental cash operating expenses would be $320,000. The project would also require a one-time renovation cost of $70,000 in year 3. The company's income tax rate is 30% and its after-tax discount rate is 7%. The company uses straight-line depreciation. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.The total cash flow net of income taxes in year 3 is:

A) $54,000
B) $42,000
C) $14,000
D) $103,000

After-Tax Discount Rate

The discount rate used in financial analysis that reflects the net cost or benefit of investment after accounting for taxes.

Incremental Sales

The additional revenue generated from a specific business action or decision, such as launching a new product.

Renovation Cost

Expenses associated with updating, refurbishing, or improving existing structures or spaces to increase their value or functionality.

  • Compute the net cash flows, after accounting for income taxes, for designated years.
  • Assess the effect of working capital management on project cash flows.
verifed

Verified Answer

DS
David SiffordDec 23, 2024
Final Answer:
Get Full Answer