assume that straper industries is considering investing in a project with the follow 629775
Items 1 and 2 are based on the following information:
Assume that Straper Industries is considering investing in a project with the following characteristics:
|
Initial investment |
$500,000 |
|
Additional investment in working capital |
10,000 |
|
Cash flows before income taxes for years 1 through 5 |
140,000 |
|
Yearly tax depreciation |
90,000 |
|
Terminal value of investment |
50,000 |
|
Cost of capital |
10% |
|
Present value of $1 received after 5 years discounted at 10% |
.621 |
|
Present value of an ordinary annuity of $1 for 5 years at 10% |
3.791 |
|
Marginal tax rate |
30% |
|
Investment life |
5 years |
Assume that all cash flows come at the end of the year.
What is the amount of the after-tax cash flows in year 2?
- $140,000
- $125,000
- $ 98,000
- $ 70,000
What is the net present value of the investment?
- $175,000
- $ 58,000
- $ 1,135
- $ (12,340)