Assume University of Michigan is evaluating whether it should invest $300,000,000 in this new innovation center in Detroit. The project would increase cash flows from operations for 5 years. The investment will have no salvage value. U of M uses a 10% hurdle rate. Other information is given below and numbers are in thousands.
Year 1 
Year 2 
Year 3 
Year 4 
Year 5 

Cash inflow from operations (pretax) 
$ 80,000 
$ 90,000 
$ 110,000 
$ 120,000 
$ 130,000 
Depreciation on tax return 
70,000 
70,000 
80,000 
40,000 
40,000 
Depreciation on financial statements 
60,000 
60,000 
60,000 
60,000 
60,000 
Net income from investment 
20,000 
30,000 
50,000 
60,000 
70,000 
PV Factor using 10% 
Requirement 1: Input the PV Factors in the above schedule using 10% for years 15. These factors must be obtained from the present value tables in the text on page A8. Use the 5 decimal places given in the table. (5 points).
Requirement 2: Compute the annual net aftertax cash inflows. We will use the alternative computations described on page 502 where we subtract the cash income tax payments from the cash inflows from operations. To start, we need to compute the annual cash income tax payments which are 21% of the cash inflow from operations less the tax return depreciation. Year 1 is done for you. Complete this schedule (5 points)
Year 1 
Year 2 
Year 3 
Year 4 
Year 5 

Cash inflow from operations (pretax) 
$ 80,000 

Depreciation on tax return 
(70,000) 

Taxable income 
10,000 

Tax rate 
21% 

Cash payment for income taxes 
$ 2,100 
Make sure to show dollar signs on the first and last number of each column. Format and align your numbers with commas and underlines on all schedules.
Now that we know the cash payment for income taxes, we can compute the aftertax cash flows. Complete the schedule below (5 points)
Year 1 
Year 2 
Year 3 
Year 4 
Year 5 

Cash inflow from operations 

Cash payment for income taxes 

Aftertax cash flows 

https://detroit.curbed.com/detroitdevelopment/2019/10/30/20939927/stephenrossdangilbertmichiganinnovationcenterdetroit
https://detroitcenterforinnovation.com/
Get Answers For Free
Most questions answered within 1 hours.