Question
1. Lanyard Company is considering an investment that will generate $600,000 in cash inflows per year for 7 years and has $240,000 of cash outflows
1. Lanyard Company is considering an investment that will generate $600,000 in cash inflows per year for 7 years and has $240,000 of cash outflows for the same period (before income taxes). The cost of the asset is $700,000 and it will be depreciated using straight-line depreciation over the 7 year life. The asset has no salvage value. Lanyards tax rate is 40%. The cost of capital is 18%. What is the annual after-tax cash flow associated with this investment?
A.$176,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
B.$260,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
C.$216,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
D.$256,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
E.None of the answer choices is correct. 2. Inglewood Inc. would like to purchase a specialized production machine for $3,500,000. The machine is expected to have a life of three years, and a salvage value of $200,000. Annual mainte-nance costs will total $200,000. Annual material savings are predicted to be $900,000. The company's required rate of return is 20 percent. Ignoring the time value of money, what is the net cash inflow or (outflow) resulting from this investment opportunity?
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