Ac 556 Week 4 Assingment

Only available on StudyMode
  • Download(s) : 229
  • Published : August 12, 2012
Open Document
Text Preview
| Week 4| | | | | | | |
| Capital Budgeting Problem| | | | | | | |
| | | | | | | | |
Data:| | | | | | | |
Initial investment| $80,000| | | | | | |
Increase in working capital| $20,000| | | | | | |
Length of investment| 6| | | | | | |
Salvage value| $8,000| | | | | | |
Before tax annual cash inflows| $28,500 | | | | | | | Tax rate| 35%| | | | | | |
Discount rate| 14%| | | | | | |
| | | | | | | | |
1. Annual accounting income| | | | | | | |
| Annual cash inflows| $28,500 | | | | | | |
| Depreciation expense| 12,000| | | | | | |
|  |  | | | | | | |
| EBT| 16,500| | | | | | |
| Income tax| 5,775| | | | | | |
|  |  | | | | | | |
| Accounting Income| $10,725 | | | | | | |
|  |  | | | | | | |
| | | | | | | | |
2. Annual after tax cash inflows| | | | | | | |
| Accounting income| $10,725 | | | | | | |
| Add back depr. Expense| 12,000| | | | | | |
|  |  | | | | | | |
| Annual after tax cash inflows| $22,725 | | | | | | | |  |  | | | | | | |
| | | | | | | | |
3. Payback based upon initial cash outflows| | | | | | | | Initial investment| $80,000|  | | | | | |
| Increase in WC| $20,000|  | | | | | |
|  |  |  | | | | | |
| Initial cash outflows| $100,000|  | | | | | |
|  |  |  | | | | | |
| Annual after tax cash inflows| $22,725|  | | | | | | |  |  |  | | | | | |
| Payback| 4.4| years| | | | | |
|  |  |  | | | | | |
| | | | | | | | |
4. Discounted payback based upon initial cash outflows| | | | | | | | | | | | | | |
|  | Annual cash inflows| 14% PV factor| Discounted cash flows|  | Balance of initial investment| Discounted payback|  |...
tracking img