Winthrop Company has an opportunity to manufacture and sell a new product for a five-year period....
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Winthrop Company has an opportunity to manufacture and sell a new product for a five-year period. To pursue this opportunity, the company would need to purchase a piece of equipment for $160,000. The equipment would have a useful life of five years and zero salvage value. It would be depreciated for financial reporting and tax purposes using the straight-line method. After careful study. Winthrop estimated the following annual costs and revenues for the new product: Annual revenues and costs: Sales revenues $310,000 Variable expenses Fixed out-of-pocket operating costs $150, e00 $ 76,000 The company's tax rate is 30% and its after-tax cost of capital is 16%. Required: 1. Calculate the annual income tax expense that will arise as a result of this investment. 2. Calculate the net present value of this investment opportunity. (Round your final answer to the nearest whole dollar.) 1. Annual income tax expense 2. Net present value Winthrop Company has an opportunity to manufacture and sell a new product for a five-year period. To pursue this opportunity, the company would need to purchase a piece of equipment for $160,000. The equipment would have a useful life of five years and zero salvage value. It would be depreciated for financial reporting and tax purposes using the straight-line method. After careful study. Winthrop estimated the following annual costs and revenues for the new product: Annual revenues and costs: Sales revenues $310,000 Variable expenses Fixed out-of-pocket operating costs $150, e00 $ 76,000 The company's tax rate is 30% and its after-tax cost of capital is 16%. Required: 1. Calculate the annual income tax expense that will arise as a result of this investment. 2. Calculate the net present value of this investment opportunity. (Round your final answer to the nearest whole dollar.) 1. Annual income tax expense 2. Net present value
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Annual Income tax expense and Net present value is as computed below Par... View the full answer
Related Book For
Managerial Accounting
ISBN: 978-0077522940
15th edition
Authors: Ray Garrison, Eric Noreen, Peter Brewer
Posted Date:
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