A proposed expansion project is expected to increase sales by $74,300 and increase cash expenses by $46,900.The
Question:
A proposed expansion project is expected to increase sales by $74,300 and increase cash expenses by $46,900. The project will require $25,800 of fixed assets that will be depreciated using straight-line depreciation to zero book value over the five-year life of the project. The store has a marginal tax rate of 23 percent. What is the operating cash flow of the project using the tax shelter approach? Ignore bonus depreciation.
Chadron Motors owns a manufacturing facility that is currently idle and debt free. The facility is located on land that originally cost $159,000. The facility itself cost $1,390,000 to build. As of now, the book value of the land and facility is $159,000 and $458,000, respectively. The firm received an offer of $1,619,000 for the land and facilities last week. Company management rejected this offer despite being told it was a reasonable offer in today's market. If the company were to consider using this land and facilities on a new project, what cost, if any, should it include in the project analysis?
Expert Answer:
To calculate the operating cash flow of the expansion project using the tax shelter approach we need ... View the full answer
