QUESTION 6 2. The is energy-efficient. The old equipment was purchased 10 years
ID: 2801713 • Letter: Q
Question
QUESTION 6 2. The is energy-efficient. The old equipment was purchased 10 years ago at a cost of $37 milion and was a sold t r Si milion today. The new equipment is 49 million and was assumed to have no value at the end of the pro ect. The firm uses stra tel e depreciation The magnal tax rate is 30% if the finn ep the old equipment now, free cash flows for the next year will tohave no value atthe end of its a. increase by $4.42 million b, increase by $4.60 million C. increase by $4.11 million d. decrease by $4.77 million e. decrease by $4.15 million year ife. The old equipment can be es QUESTION 7 1. The Intermax approved a new project that will generate the following figures for each year for the next 13 years: Revenue of of $10 milion. The margral tax rate is 30% what is interme's mr Cosh lwe $65 million, Operating Expenses of $30 million, and Depreciation and Amamzation a, 28.60 million b, 25.85 million c, 17.50 million d. 28.05 million QUESTION 8 0.5 10. a. True b. False QUESTION 9Explanation / Answer
6) Annual depreciation on old equipment 37/20= 1.85 Annual depreciation on new machine 49/10 = 4.9 Incremental depreciation= 3.05 Savings in expenses 5 Less: Incremental depreciation 3.05 Incremental Operating income 1.95 Tax @ 30% 0.585 Post tax incremental income 1.365 Add; Depreciation 3.05 Incremental Cash inflow 4.415 (Ans wer a) 7) Revanue 65 Operating Expenses 30 Depreciation and amortization 10 PBT 25 Less: Tax @ 30% 7.5 PAT 17.5 Depreciation and amortization 10 CFAT 27.5 Annual Cash flows 27.5 For next 13 years (Answer e) 8) TRUE As the depreciation increases it will result in higher tax savings and hence more cash in our hands Please provide feedback…. Thanks in advance…. :-)