XYZ Corp. expects the following revenues, cash expenses, and depreciation charges in the future: Year 1 2
Question:
- XYZ Corp. expects the following revenues, cash expenses, and depreciation charges in the future:
Year 1 2 3
Revenues $89,000 $106,000 $145,000
Cost of goods sold $38,000 $ 49,000 $53,000
Selling expenses $11,000 $ 13,000 $14,000
Other cash operating expenses $10,000 $ 11,000 $12,000
Depreciation $ 9,500 $ 13,500 $15,000
This business is in the 22 percent tax bracket. Please compute the after-tax cash flows from operations for this investment for each of the years.
After tax operating cash flow for Year 1_____________ Year 2___________Year 3___________
- In addition to the estimates above the business needs 4 percent of revenues as a cash balance, 11 percent of the cost of goods sold as an inventory balance, 6 percent of the cost of goods sold as an accounts payable balance, and 5 percent of revenues as accrued expenses balance. All these balances would be needed at the beginning of each year and are estimated from the year-end annual estimates of revenues and cash expenses given above. The business will end at the end of year 2 and all working capital balances will be collected (or realized) at their face value. Please calculate the incremental investment in working capital needed for years 0,1,2 and 3, and then recalculate the cash flows for XYZ Corp. investment.
Incremental investment in working capital Year 0___________Year 1___________ Year 2___________Year 3_________
Recalculated cash flows from operations Year 0___________Year 1___________ Year 2____________Year 3_________
- You are thinking of opening an internet coffee shop and estimate the following cash flows. The cost of the establishment is $1.200,000 for the building and $250,000 for equipment (tax life of 5 years) and both are placed into service on June 1. The business will earn $42,300 per week in revenue and have cash expenses of $38,000 per week during its twelve years of operation. Assume a 50-week year. The building and equipment will be sold for an after-tax cash disposition value of $600,000 at the end of the 12th year. No other cash flows will occur during the 12 years of operation. Using a 25 percent tax rate, and a 9 percent cost of money, what is the net present value of this business?
Net present value______________________
4. Myles Corporation is considering a new computer system (equipment) that can be purchased for $140,000. Delivery will cost $8,200 and setup will cost $12,000. What is the initial depreciable cost (the amount that can be depreciated – not depreciation expense) of the computer system?
Depreciable cost (not depreciation expense -- you may want to refer to the text) ______________________
- Mason James Corporation expects to install a $188,000 machine in 2022 and another $110,000 machine in 2023. The first machine has a 7-year tax life and the second machine has a 3-year tax life. What is the total expected depreciation expense for these two machines in 2024?
Total depreciation expense for both machines in 2024______________________
6.
You place a commercial building into service on November 11, 2021, costing $54,500,000. What is the depreciation expense allowed by the IRS for this building for tax years 2021? And 2022?
2021 ___________
2022 ___________
7.
You are opening your own business and estimate the following expenses and revenues:
Revenues year 1 $351,000 growing at 7% thereafter
Cost of goods sold year 1 $125,000 growing at 8% thereafter
Operating expense year 1 $35,000 growing at 4% thereafter
Taxes all years 26% per year
Depreciation $32,000 in year 1, $44,000 in year 2, $35,000 in year 3
Cash flows from operations for Year 1________, Year 2________ Year 3___________