Quizzes- Managerial Finance XLS Group 88 Fall Updates Do you w these up As Finan

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Quizzes- Managerial Finance XLS Group 88 Fall Updates Do you w these up As Finance X... GALILEO Logged in as landers_ashleigh |11/5/2018HEi Locker TATE Managerial Finance XLS Group B8 Fall Semester 2017 CO Discussions Assignments Quizzes:VGrades ; Groups Rubrics Self Assessments 2 Classlis Quiz 12- Capital Budgeting CF - Quiz hleigh Landers: Attempt 1 Question 4 (1u points) Hollister & Hollister is considering a new project. The project will require $500,000 for new fixed assets, $220,000 for additional inventory, and $40,000 for additional accounts receivable. Short-term debt is expected to increase by $200,000. The project has a 6-year life. The fixed assets will be depreciated straight-line to a zero book value over the life of the project. At the end of the project, the fixed assets can be sold for 20 percent of their original.cost. The net working capital returns to its original level at the end of the project. The project is expected to generate annual sales of $900,000 and costs of $650,000. The tax rate is 34 percent and the required rate of return is 14 percent. What is the amount of the aftertax cash flow from the sale of the fixed assets at the end of this project? $87,500 35,500 O$66,000 O $65,500 $44,500 Save Question 5 (10 points) Hollister & Hollister is considering a new project. The project will require $500,000 for new fixed assets, $220,000 for additional inventory, and $40,000 for additional accounts receivable. Short-term debt is expected to increase by $200,000. The project has a 6-year life. The fixed assets will be depreciated straight-line to a zero book value over the life of the project. At the end of the project, the fixed assets can be sold for 20 percent of their original cost. The net working capital returns to its original level at the end of the project. The project is expected to generate annual sales of $900,000 with costs of $650,000. The tax rate is 34 percent and the required rabe of return s 14 percent. What is the project's cash flow at time zero?

Explanation / Answer

Dear student, only one question is allowed at a time. I am answering the first question

The book value of the asset at the end of useful life is 0

So, sale value

= Purchase price x 20%

= $500,000 x 20%

= $100,000

Now, Capital gains tax

= (Sale value – book value) x Tax Rate

= ($100,000 – 0) x 34%

= $34,000

So, After tax cash flows from fixed assets

= Sale value – Tax paid

= $100,000 - $34,000

= $66,000

So, option C is the correct option

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