The first situation is that the initial investment only requires working capital. Suppose the payments to vendors
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The first situation is that the initial investment only requires working capital. Suppose the payments to vendors must be settled days after purchase, and we extend credit to customers so that they can settle in days. That's days where we've made a payment to the vendors and we are waiting to recover the cash from our customers. The cash used as a stockpile to stay current with vendors. When the project is over, the cash can be returned to general use. Working capital cash is not not deductible when the company first sets it aside and it is not taxable when the the cash is returned to general use. Check figure for project $ Situation involves purchases of equipment that will depreciate. The depreciation is not the same for each vear. Following the notion from about page in the text, each year Taxes Revenue Other Expenses Depreciation Expense tax rate Cash Flow Revenue Other Expenses Taxes Check figure for project $ Problem Statement Able Company has a possible project. It takes an inital investment of $ and will produce ten years of net cash flows of $ each year before taxes. Taves are assessed at percent. The time value of money is percent. We will compute the present value of the project under a variety of circumstances. Suppose the $ initial investment is money that we put aside for working capital. Working capital includes money we use in a cyde to pay vendors while we wait for collections from customers. At the end of the ten years, we can recover the $ The $ is not deductible for tax purposes and not taxable when we recover it Suppose the $ initial investment is imestment in equipment that will be depreciated for tax purposes. The depreciation is taken as accelerated depreciation of $ for five years and no depreciation for the second five vears. Required: Find the present value of the projects.
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
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