5 WT Ltd is considering investing in a project that will cost $2250,000 and will last for...
Question:
5 WT Ltd is considering investing in a project that will cost $2250,000 and will last for 10 years. One year ago, PQ hired an consultant to collect market information and paid $15,000 fees. The CFO suggests the project will generate a net operating profit after tax(i.e. EBIT*(1-t)) of $800,000 each year and will recoup $600,000 salvage value after tax at the end of the project. WTD Ltd incurs $150,000 interest expenses per year and the depreciation expense associated with the project is $200,000 per year. The marginal tax rate for the company is 30%. The project also require the following changes in current assets and current liabilities on the inception of the project.
a.80000 increase in inventory
b. 30000 increase in account payable
1 Which of the following is correct? The total net cashflow to the company at the end of the project is
A 1,600,000
B 1,700,000
C 1,650,000
D 600,000
E 650,000
2 Which of the following changes would have a direct negative impact on the company’s net cash flow?
A the 500,000 net operating profit after tax
B the 400,000 salvage value
C the 80,000 increase in inventory
D the 5,000 consulting fee
E the 30,000 increase in account payable
Using Financial Accounting Information The Alternative to Debits and Credits
ISBN: 978-1133161646
7th Edition
Authors: Gary A. Porter, Curtis L. Norton