Keenan's Discount Rate

Keenan's Tax Rate

$1$

What is the annual depreciation expense for the building and equipment, using the straight$-$line method and the salvage value under

the tax laws?

$2$ What are the annual after$-$tax cash flows associated with the Specialty Guitar Project?

$3$ After$-$tax cash flow from selling the equipment at the end of the $5$ years.

Market Value

Book Value

Gain$/$Loss

Tax Increase$/$Decrease

Pre$-$tax Cash Flow

Tax Increase$/$Decrease

After$-$tax Cash Flow

$4$&$5$ Schedule of Cash Flows

All positive cash flows mus be shown as a positive number,

All negative cash flows must be shown as a negative number.

Cost of Investment

Year $1$

Complete the Schedule of Cash Flows before you answer Questions $4$ and $5.$

$4$ What is the Net Present Value $($NPV$)$ for the Specialty Guitar Project for each expecied market value from Question $3?$

Expected Market Value

$

$93,848$

$

$16,757$

years. What is the after$-$tax cash flow from sellingKeenan Music $--$ Capital Budgeting Case

The CEO for Keenan Music has been approached about the opportunity to make specialized guitars for famous musicians for the next $5$ years.

However, the current plant does not have the capacity to produce any new products. Therefore, in order to pursue this opportunity, Keenan Music

will need to purchase additional production space, new equipment and hire additional employees. The CEO believes that this is a good

investment, but needs to get the plant manager on board as he will be responsible for all three product lines, acoustic, electric and specialty. The

accountant has gathered all the necessary information about the specialty guitars project as f$$llows$.$

Supplemental Calculations

$2$ After$-$tax cash flow calculation