Question

Johnny’s Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $46,000 and will...

Johnny’s Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $46,000 and will be depreciated according to the 3-year MACRS schedule. It will be sold for scrap metal after 3 years for $11,500. The grill will have no effect on revenues but will save Johnny’s $23,000 in energy expenses per year. The tax rate is 35%. Use the MACRS depreciation schedule.

a. What are the operating cash flows in each year?

b. What are the total cash flows in each year?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1
year 0 1 2 3
Initial investment -46000
saving in expense 23000 23000 23000
less:Depreciation (15331.8)   [46000*33.33%] (20447 )   [46000*44.45%) (6812.6) [46000*14.81%)
Income before tax 7668.2 2553 16187.4
lesS:tax (2683.87)      [7668.2*.35] (893.55) (5665.59)
Net Income 4984.33 1659.45 10521.81
adD:depreciation 15331.8 20447 6812.6
operating cash flow 20316.13 22106.45 17334.41
after tax sale value 8668.01
Total cash flow -46000 20316.13 22106.45 26002.42

Book value at end of year3 :46000*.0741 = 3408.6

Gain on sales: 11500-3408.6 = 8091.4

tax on gain : 8091.4 *.35 = 2831.99

after tax sale value : 11500-2831.99= 8668.01

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Grill Master Johnnys is thinking about purchasing a new, energy-efficient grill. The grill will cost $53,000.00...
Grill Master Johnnys is thinking about purchasing a new, energy-efficient grill. The grill will cost $53,000.00 and will be depreciated according to the 3-year MACRS schedule. It will be sold for scrap metal after 3 years for $11,750.00. The grill will have no effect on revenues but will save Johnny’s $23,500.00 per year in energy expenses. The tax rate is 40%. The 3-year MACRS schedule; Year Depr % 1 33.33 2 44.45 3 14.81 4 7.41 What is the total...
Grill Master Johnnys is thinking about purchasing a new, energy-efficient grill. The grill will cost $53,000.00...
Grill Master Johnnys is thinking about purchasing a new, energy-efficient grill. The grill will cost $53,000.00 and will be depreciated according to the 3-year MACRS schedule. It will be sold for scrap metal after 3 years for $11,750.00. The grill will have no effect on revenues but will save Johnny’s $23,500.00 per year in energy expenses. The tax rate is 40%. The 3-year MACRS schedule; Year Depr % 1 33.33 2 44.45 3 14.81 4 7.41 What is the total...
Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $45,000 and will...
Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $45,000 and will be depreciated according to the 3 year MACRS schedule (33.33% yr 1, 44.45% yr 2, 14.81% yr 3, 7.41% yr 4.) . It will be sold for scrap metal after 3 years for $2050. The annual sales are 18,500 and the annual COGS is $3500, and the firms tax rate is 30%. What are annual operating cash flows and terminal value? You do not...
Suppose a project requires purchasing equipment worth $10m. After 3 years the equipment will be sold...
Suppose a project requires purchasing equipment worth $10m. After 3 years the equipment will be sold for $2.5 m. Calculate after-tax cash flow associated with the sale of the equipment if corporate tax rate is 35%. Assume the equipment needed for the project is depreciated according to MACRS 5-year depreciation schedule: 5-year MACRS: Year 0: 20% Year 1: 32.0% Year 2: 19.2% Year 3: 11.52% Year 4: 11.52% Year 5: 5.76%
Suppose a project requires purchasing equipment worth $10m. After 4 years the equipment will be sold...
Suppose a project requires purchasing equipment worth $10m. After 4 years the equipment will be sold for $2 m. Calculate after-tax cash flow associated with the sale of the equipment if corporate tax rate is 35%. Assume the equipment needed for the project is depreciated according to MACRS 5-year depreciation schedule: 5-year MACRS: Year 0: 20% Year 1: 32.0% Year 2: 19.2% Year 3: 11.52% Year 4: 11.52% Year 5:   5.76%
Suppose a project requires purchasing equipment worth $10m. After 4 years the equipment will be sold...
Suppose a project requires purchasing equipment worth $10m. After 4 years the equipment will be sold for $2 m. Calculate after-tax cash flow associated with the sale of the equipment if corporate tax rate is 35%. Assume the equipment needed for the project is depreciated according to MACRS 5-year depreciation schedule: 5-year MACRS: Year 0: 20% Year 1: 32.0% Year 2: 19.2% Year 3: 11.52% Year 4: 11.52% Year 5:   5.76%
Thornley Machines is considering a 3-year project with an initial cost of $618,000. The project will...
Thornley Machines is considering a 3-year project with an initial cost of $618,000. The project will not directly produce any sales but will reduce operating costs by $265,000 a year (i.e., Sales –Costs = 265,000). The equipment is depreciated according to the MACRS 3-year class. At the end of the project the equipment will be sold for an estimated $60,000. The tax rate is 34%. The project will require $23,000 in extra inventory for spare parts and accessories. Find (remembering...
Your firm, NoGmo Foods, is considering purchasing a new tractor that would cost $54,000. It would...
Your firm, NoGmo Foods, is considering purchasing a new tractor that would cost $54,000. It would increase pre-tax revenues by $25,000, and pre-tax operating costs (before taking account of depreciation) by $10,000 per year. The tractor would be depreciated on a straight-line basis to zero (i.e., no salvage value), over 5 years, beginning the first year. (Use the 5-year straight-line depreciation for all analyses and ignore the MACRS half-year convention for this problem.) Assuming a 40% marginal tax rate, zero...
Carlson Machine Shop is considering a four-year project to improve its production efficiency by purchasing a...
Carlson Machine Shop is considering a four-year project to improve its production efficiency by purchasing a new machine press for $480,000 that will result in $160,000 in annual pre-tax cost savings. The press will be depreciated using the 5-year MACRS depreciation schedule and management expects to be able to sell it for $70,000 at the end of four years. The new press will require an initial inventory of $20,000 with an additional $3,000 in spare parts inventory required each year...
Your firm is considering purchasing a new tractor that would cost $54,000. It would increase pre-tax...
Your firm is considering purchasing a new tractor that would cost $54,000. It would increase pre-tax revenues by $25,000, and pre-tax operating costs (before taking account of depreciation) by $10,000 per year. The tractor would be depreciated on a straight-line basis to zero (i.e., no salvage value), over 5 years, beginning the first year. (Use the 5-year straight-line depreciation for all analyses and ignore the MACRS half-year convention for this problem.) Assuming a 40% marginal tax rate, zero salvage value,...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT