The following table presents sales forecasts for Golden Gelt Giftware. The unit price is $40. The...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
The following table presents sales forecasts for Golden Gelt Giftware. The unit price is $40. The unit cost of the giftware is $25. Year 1 2 3 4 Thereafter Unit Sales 22,800 34,000 18,000 5,000 0 It is expected that net working capital will amount to 20% of sales in the following year. For example, the store will need an initial (Year O) investment in working capital of .20 x 22,800 x $40 = $182,400. Plant and equipment necessary to establish the giftware business will require an additional investment of $220,000. This investment will depreciate on the MACRS schedule over 3 years. After 4 years, the equipment will have an economic and book value of zero. The firm's tax rate is 30%. The discount rate is 20%. Use the MACRS depreciation schedule. a. What is the net present value of the project? Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount. Year(s) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17-20 21 3 Year 33.33 44.45 14.81 7.41 5 Year 20.00 32.00 19.20 11.52 11.52 5.76 Recovery Period Class 7 Year 10 Year 10.00 18.00 14.40 11.52 9.22 7.37 6.55 6.55 6.56 6.55 3.28 14.29 24.49 17.49 12.49 8.93 8.92 8.93 4.46 15 Year 5.00 9.50 8.55 7.70 6.93 6.23 5.90 5.90 5.91 5.90 5.91 5.90 5.91 5.90 5.91 2.95 20 Year 3.75 7.22 6.68 6.18 5.71 5.28 4.89 4.52 4.46 4.46 4.46 4.46 4.46 4.46 4.46 4.46 4.46 2.23 Notes: 1. Tax depreciation is lower in the first year because assets are assumed to be in services for 6 months. 2. Real property is depreciation stright-line over 27.5 years for residential property and 39 years for nonresidential property. The following table presents sales forecasts for Golden Gelt Giftware. The unit price is $40. The unit cost of the giftware is $25. Year 1 2 3 4 Thereafter Unit Sales 22,800 34,000 18,000 5,000 0 It is expected that net working capital will amount to 20% of sales in the following year. For example, the store will need an initial (Year O) investment in working capital of .20 x 22,800 x $40 = $182,400. Plant and equipment necessary to establish the giftware business will require an additional investment of $220,000. This investment will depreciate on the MACRS schedule over 3 years. After 4 years, the equipment will have an economic and book value of zero. The firm's tax rate is 30%. The discount rate is 20%. Use the MACRS depreciation schedule. a. What is the net present value of the project? Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount. Year(s) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17-20 21 3 Year 33.33 44.45 14.81 7.41 5 Year 20.00 32.00 19.20 11.52 11.52 5.76 Recovery Period Class 7 Year 10 Year 10.00 18.00 14.40 11.52 9.22 7.37 6.55 6.55 6.56 6.55 3.28 14.29 24.49 17.49 12.49 8.93 8.92 8.93 4.46 15 Year 5.00 9.50 8.55 7.70 6.93 6.23 5.90 5.90 5.91 5.90 5.91 5.90 5.91 5.90 5.91 2.95 20 Year 3.75 7.22 6.68 6.18 5.71 5.28 4.89 4.52 4.46 4.46 4.46 4.46 4.46 4.46 4.46 4.46 4.46 2.23 Notes: 1. Tax depreciation is lower in the first year because assets are assumed to be in services for 6 months. 2. Real property is depreciation stright-line over 27.5 years for residential property and 39 years for nonresidential property.
Expert Answer:
Answer rating: 100% (QA)
Aarr We must identify the cash flows for Each year Paesent value and discount them t... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
Students also viewed these accounting questions
-
Project Evaluation. The following table presents sales forecasts for Golden Gelt Giftware. The unit price is $40. The unit cost of the giftware is $25. YearUnit Sales 1...
-
Parker & Stone, Inc., is looking at setting up a new manufacturing plant in South Park to produce garden tools. The company bought some land six years ago for $5.2 million in anticipation of...
-
A varying current in a coil changes from 10A to zero in 0.5 sec. If the average e.m.f induced in the coil is 220V, the self-inductance of the coil is (a) 5 H (c) 11 H (b) 6 H (d) 12 H
-
Monterey Co. makes and sells a single product. The current selling price is $15 per unit. Variable expenses are $9 per unit, and fixed expenses total $27,000 per month. Required: (Unless otherwise...
-
Construct a frequency distribution and histogram for the cotton content data in Exercise 6-16.
-
Draw structures corresponding to the following IUPAC names: (a) 1, 1-Dimethylcycloocatne (b) 2-Cyclobutylhexane (c) 1, 2-Dichlorocyclopentane (d) 1, 3-Dibromo-5-methylcyclohexane
-
Apex Electrical Supply, Inc., purchased inventory for \($2,000\) and also paid \($125\) freight to have the inventory delivered. Apex Electrical Supply, Inc., returned \($500\) of the goods to the...
-
Assume that Revolights was interested in working with strategic partners in order to enhance the firms success. What types of companies might Revolights partner with to become more successful?
-
You just started working as a Health Service Manager within one of the following healthcare industries. First, choose an industry below to discuss the questions that follow: Ambulatory Surgery center...
-
Brown Corporation has the following items for Year 1. Its income statement is as follows. Income Sales Cost of goods sold Gross Profit Dividends received from stock investments in Less than 20% owned...
-
Discuss why product liability insurance is a significant and necessary cost for a business owner. What exclusions might be included in the insurance policy?
-
Which of the following statements about cash received prior to the recognition of revenue in the financial statements is most accurate? The cash is recorded as: A. deferred revenue, an asset. B....
-
Which of the following is an off -balance-sheet financing technique? The use of A. capital leases B. operating leases. C. the last in, first out inventory method.
-
Which of the following elements of financial statements is most closely related to measurement of performance? A. Assets. B. Expenses. C. Liabilities.
-
TRR Enterprises sold products to customers on 30 June 2006 for a total price of 10,000. The terms of the sale are that payment is due in 30 days. Th e cost of the products was 8,000. The most likely...
-
Compared to using a finance lease, a lessee that makes use of an operating lease will most likely report higher: A. debt. B. rent expense. C. cash flow from operating activity.
-
Parlour Corporation has a target capital structure of 35% bond financing, 25% preferred stock financing, and 40% common equity financing. The cost of bonds is 9%, the cost of preferred stock is 11%,...
-
Phosgene, COCl2, is a toxic gas used in the manufacture of urethane plastics. The gas dissociates at high temperature. At 400oC, the equilibrium constant Kc is 8.05 104. Find the percentage of...
-
Larry Gaines, age 42, sells his personal residence on November 12, 2012, for $144,000. He lived in the house for 7 years. The expenses of the sale are $10,500, and he has made capital improvements of...
-
Sherry rents her vacation home for 6 months and lives in it for 6 months during the year. Her gross rental income during the year is $4,000. Total real estate taxes for the home are $950, and...
-
Calculate the amount of the child and dependent care credit allowed for 2012 in each of the following cases, assuming the taxpayers had no income other than the stated amounts. a. William and Carla...
-
How reliable is the model in Task 6? Task 6 An HIV researcher explored the factors that influenced condom use with a new partner (relationship less than 1 month old). The outcome measure was whether...
-
An HIV researcher explored the factors that influenced condom use with a new partner (relationship less than 1 month old). The outcome measure was whether a condom was used (use: condom used = 1, not...
-
A female who used a condom in her previous encounter scores 2 on all variables except perceived risk (for which she scores 6). Use the model in Task 6 to estimate the probability that she will use a...
Study smarter with the SolutionInn App