4. Tapioca\'s new investment project is expected to generate earnings before tax

Question

4. Tapioca's new investment project is expected to generate earnings before taxes (EBT) of $60,000 per year. Annual depreciation from the project is $28,000 and the firm's tax rate is 40 percent. Determine the project's annual net cash flows. (Points : 3)        $64,000
       $70,000
       $36,000
       $52,000

       independent projects
       mutually exclusive projects
       contingent projects
       separable projects

Question 5. 5. The management of Casper Company is planning to purchase a new milling machine that will cost $150,000 installed. The old milling machine has been fully depreciated but can be sold for $15,000. The new machine will be depreciated on a straight line basis over it's 10 year economic life to an estimated salvage value of $0. If this milling machine will save Casper $25,000 a year in production expenses, what are the annual net cash flows associated with the purchase of this machine? Assume a marginal tax rate of 40 percent. (Points : 3)        $15,000
       $24,000
       $27,000
       $21,000

Explanation / Answer

4.CASH FLOWS= EBT-TAX+DEPRECIATION

=60000-60000*40%+28000

=60000-24000+28000

=64000

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