Maurice Tutor

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    Argosy University/ Phoniex University/
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Category > Management Posted 17 Jan 2018 My Price 7.00

Classic Autos Incorporated plan

The managers of Classic Autos Incorporated plan to manufacture classic T-Birds (1957 replicas). The necessary foundry equipment will cost a total of $4,000,000 and will be depreciated using a five-year MACRS life. Projected sales in annual units for the next five years are 300 per year. If sales price is $27,000 per car, variable costs are $18,000 per car, and fixed costs are $1,200,000 annually, what are the annual operating cash flows if the tax rate is 30%? The equipment is sold for salvage for $500,000 at the end of year five. What is the after tax cash flows of the salvage? Net working capital increases by $600,000 at the beginning of the project (Year 0) and is reduced back to its original level in the final year. What is the incremental cash flows of the project? Using a discount rate of 12% for the project, should the project be accepted or rejected with the NPV decision model?

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Brock Florist Company buys a new delivery truck for $29,000. It is classified as a light duty truck.

a. Calculate the depreciation schedule using a five year life and straight line depreciation and the half year convention for the first and last year.

b. Calculate the depreciation schedule using a five year life and MACRS depreciation.

c. Compare the depreciation schedules from parts a and b before and after taxes with a 30% tax rate for Brock Florists. What do you notice about the difference in these two methods?

 

Answers

Maurice Tutor
(5)
Status NEW Posted 17 Jan 2018 08:01 PM My Price 7.00

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