The correct final answers are provided below, please show your work on how to ge

Question

The correct final answers are provided below, please show your work on how to get the answers. Thanks!

5. $5,600

6. $8,700

Use the following information to answer questions 5 through 6. Roper Company is considering a project that would allow it to expand sales. It collected the following information about the project. Life of the project Cost of new equipment Working capital required Annual pre-tax cash inflow Salvage value of new equipment purchased 5 years $80,000 0,000 30,000 0 The working capital needed for the project will be released at the end of the project for investment elsewhere ation for tax purpose s and depreciates its assets down to salvage value. The company is subject to a 35% tax rte It has Roper uses straight-line depreci an after tax opportunity cost of capital of 1 190, 5. Compute the amount of the annual depreciation tax shield associated with the project. 6. Compute the after-tax net present value of the project.

Explanation / Answer

Answer 5) Annual depreciation = 80000 / 5years = $ 16000

annual saving from depreciation tax shield = $ 16000 *35% = $ 5600

Answer 6)

Items and computations Year Amount of Cash inflow Tax effect After tax cash flows 11% factor Present value of cash flow net annual cash inflows 1-5          30,000 0.65           19,500 3.696           72,072 Working capital released 5          10,000 0           10,000 0.593              5,930 Cost of new equipment Now          80,000 0           80,000 1         (80,000) Working capital required Now          10,000 0           10,000 1         (10,000) Depreciation 1-5          16,000 0.35             5,600 3.696           20,698 NPV              8,700

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