Question
There is a project under consideration. This project (3 year life) requires $180,000, and there is no salvage value and no net working capital is
There is a project under consideration. This project (3 year life) requires $180,000, and there is no salvage value and no net working capital is needed. The required return for this project is 12%. This project The pro forma income statement is follows:
Sales: $200,000
Costs: $120,000
Depreciation: $60,000
EBIT: ???
Taxes (30%): ???
Net Income: ???
Suppose this firm is currently earning a large amount of positive net income from the other projects. If the initial investment of $180,000 is financed at 10% interest rate and the marginal tax rate for the firm is 30%, what is the financial side effect (tax benefits) from this project? If this financial side effect is considered, is this project acceptable?
A) $1,800; No
B) $2,500; No
C) $6,000; Yes
D) $5,400; Yes
E) No side effect.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started