Question
The following information is related to five different capital budgeting situations, each of which involves a cash inflow or outflow. Purchase price of a new
The following information is related to five different capital budgeting situations, each of which involves a cash inflow or outflow.
Purchase price of a new machine: $850,000
Annual straight-line depreciation recorded on a machine: $75,000
Annual savings in cash-based operating costs because of an investment: $120,000 [Note, dollar saved is dollar earned]
Advertising expenses related to a new marketing campaign: $35,000
Sale of an old asset, resulting in a loss on the sale of $60,000. Proceeds received by the seller of the asset: $23,000
Calculate the amount of NET cash flow to be used in each situation.
Arrange your answer in five rows and two columns, with the first column showing net cash flow assuming no income tax, and the second column showing net cash flow assuming 30% income tax rate. For a net outflow of cash, show the amount in parentheses.
The first situation is shown below as an example.
|
| Cash flow without income tax effect | Cash flow after income tax effect |
| Purchasing a new machine | ($850,000) | ($850,000) because there is no tax benefit on the purchase of an asset. |
| Annual straight-line depreciation expense recorded on a machine |
|
|
| Annual savings in cash operating costs because of an investment |
|
|
| Advertising expenses related to a new marketing campaign |
|
|
| Sale of an old asset, resulting in a loss on the sale |
|
|
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Using Equity Audits In The Classroom To Reach And Teach All Students
Authors: Kathryn B. McKenzie, Linda E. Skrla
1st Edition
141298677X, 978-1412986779
