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Commercial paper. nearest percent, assuming no taxes are paid? Using this information, the internal rate of return factor can be computed as follows: Internal rate of return factor = $8,475 /$1,500 = 5.650 P60,000. requirement? The factor reflects the same relationship of investment and cash inflows as in case of payback calculations. machine would cost P550,000, have a 5-year life, and save P75,000 per year in cash A. Ignoring depreciation and taxes, the annual net cash inflow is computed as follows: Depreciation and taxes The computation of the net income usually includes the effects of depreciation and taxes. Although depreciation does not involve a cash outflow, it is deductible in arriving at federal taxable income. The use of a depreciation method allows a company to expense the cost of an asset over time while also reducing the carrying value of the asset. The truck is expected to cost P300,000. A. P540,000 C. P660, Between 5 and 6 years C. Between 7 and 8 years Initial public offering of an established profitable conglomerate. Depreciation can be a tricky subject, particularly when it comes to its effect on your business’s cash flow.Although depreciation is a non-cash expense, it influences cash flow in an indirect way. A. Operating Cash Flow (OCF) is a measure of the amount of cash generated by a company's normal business operations. Transactions balance. I. generate a net present value of P0 on the project? First step is identify the nature of the annual cash inflows. new press would increase inventories by P40,000, accounts receivable by P160, Depreciation is the annual allocation of fixed asset acquisition costs. A. Payback and present value results. c. Increase the average collection period. Conceptually, depreciation is the reduction in the value of an asset over time due to elements such as wear and tear. It has a life of four years and will be depreciated on a straight- How many Fourth quarter capex is expected to approximate $50 million, including the strategic investments in additional dual fuel conversions and the continued deployment of capital for our new Power Solutions business. First step is identify the nature of the annual cash inflows. The investment required is P80 million for a plant with a capacity of P15, company want to purchase the new machine? Would the c. Precautionary balance. A. The company’s desired after-tax opportunity costs is 12%. B. Outflow of P6,500. B. The faster a firm can 'push' items around the cycle the lower its investment in working capital will be. The firm’s tax rate is 25% and requires a return of 10%. But the total cash inflow for the 4 years is 15000 ie. Approximate price: -Here’s what our customers are saying about our services I have a tight working schedule and was always stuck with my assignments due to my busy schedule but this site has been really helpful. A. P 68,492 C. P 88, The firm’s discount rate is 8 percent. A. Items 3 and 4 only. Found inside – Page 10Accelerated depreciation methods or learning experience may also cause further irregularities of cash inflow . Needless to say , most analysts recognize these irregularities in investment expenditures and cash inflows . d. Earn maximum returns on investment assets. Which of the following combinations is NOT possible? A cash outflow can be money paid or increased cost expenditures from capital investment. That generates cash flows for the longer period of time. A C. C The net cash flow for year 4 is Found inside – Page 25-2625-26 CHAPTER 25 Planning for Capital Investments Perform a post-audit. expected useful life of 10 years, a salvage value of zero, and is expected to increase net annual cash flows by $55,000. A discount rate of 9% is appropriate for ... Equipment cost Increase bad-debt losses. D. The NPVs are equal, hence you are indifferent. Residual sales value It can thus have a big impact on a company’s financial performance overall. Investopedia does not include all offers available in the marketplace. A. The cost of a transaction is independent of the peso amount of the transaction We will guide you on how to place your essay help, proofreading and editing your draft – fixing the grammar, spelling, or formatting of your paper easily and cheaply. An optimal capital budget is determined by the point where the marginal cost of The new machine is expected to have annual before-tax cash inflows of $100,000 and annual before-tax cash outflows of $40,000. Maximize sales. support operation planned with the new equipment. Subtracted from net income because it is an expense. The net cash flow for year 1 is A new electric bus will cost P90,000, and will produce considered is worth P800,000 and the supplier is willing to accept the old machine at D. The net present value method will provide a ranking of the projects that is The ARR is based on the accrual basis, not cash basis. Annual Cash inflow = ` 80,000, Useful life = 4 years ... PV of Cash Flows (Other than Depreciation) (1,23,300) Depreciation Impact + 4,19,623 Net Impact + 2,96,323 . and internal rate of return will provide a consistent ranking of the projects. Which of the following characteristics represent an advantage of the internal rate of Added back to net income because it is an inflow of cash The accounting entries for depreciation are a debit to depreciation expense and a credit to fixed asset depreciation accumulation. Consider a project that requires an initial cash outflow of P500,000 with a life of eight years and a salvage value of P20,000 upon its retirement. Annual after-tax operating cash flows (^ = incremental and T = Tax rate). d. Use of checks and drafts in disbursing funds. Found inside – Page 205It is computed as follows: ARR = Annual net income ÷ Average (or initial) investment Using the same example and assuming the annual cash flows approximate annual net income before depreciation and taxes for the project, the ARR before ... Yes, due to NPV of P11,684. B. b. subtracted from net income because it is an outflow of cash. c. WIP generally has the lowest marketability of the various types of inventories. A project has an annual net cash inflow (in current terms) of $3 million, occurring at the end of each year of the project's two year life. Most sales are on cash basis and receivables are aged “current”. Depreciation represents the declining economic value of an asset, but is not an actual cash outflow. a cost of P950,000. The text and images in this book are in grayscale. The NPV of the project is calculated as follows: N P V = $ 5 0 0 ( 1 + 0. A. 10% C. 11% D. 12%, The Zeron Corporation recently purchased a new machine for its factory operations Cash flow control Analysts can look at EBITDA as a benchmark metric for cash flow. The machine will have a life of 5 years with no salvage value, and is expected to generate annual cash revenue of $50,000. C. Subtracted from net … If the internal rate of return method is used in the capital rationing problem, the 36%. C Corp. assumes that all cash flows occur at the end of the year c. Cash discount given. TVM. Drillers Inc. is evaluating a project to produce a high-tech deep-sea oil exploration Projects extending beyond 5 years must earn a higher specified rate of return. In this problem, the annual cash inflows are equivalent throughout life period of the . Thus, where the project generates constant cash inflows. B. P80,000 D. P100. Depreciation expense like amortisation is a non-cash expense. Has a relaxed (lenient) credit policy. There are several accounting entries associated with depreciation. Therefore, in the 7th year, the total cash inflow will be ` 2,06,671. E. The company has a target capital structure which is 40 percent debt and 60 percent 4. The impact of the project on income taxes to be paid. To approximate net annual cash flow, depreciation is: a. subtracted from net income because it is an expense. 5.14 years C. 5.11 years Profitability Index NPV IRR Future costs. The company has an effective It uses 16% as hurdle rate in evaluating capital projects. C. If a project is found to be acceptable under the NPV approach, it would also be value at the end of the six-year period. Annual depreciation based on straight line method, d= Initial cost−Scrap value service life d=250000−60300 8 = 189700 8 =Rs.23,712.5 (Same for all years) Netprofit each year = Cash inflow – depreciation 45000 – 23712.5 Rs.21,287.5 Annual rate of return = Net profit×100 Total capital investment = 21287.5×100 250000 =8.515% B. P108,750 D. P107, The payback period of the investment is (M) (b.) The project would be accepted on the basis of the   Privacy The McNally Co. is considering an investment in a project that generates a Annual cash inflow before tax amounts to P100,000 and a tax rate of 30 percent will be applicable. Where, F = Factor to be located. C. –P16.8 million. Cash Flow Forecast = Beginning Cash + Projected Inflows – Projected Outflows = Ending Cash. B. P 69,550; no D. P 326,750; no. The loss on retirement of these other assets is P1,000 which will reduce income Cash flow from operations is the section of a company’s cash flow statement that represents the amount of cash a company generates (or consumes) from carrying out its operating activities over a period of time. Ultimately, depreciation does not negatively affect the operating cash flow of the business. If a project is found to be acceptable under the NPV approach, it would also be disposal value now is P5,000, but it would be zero after 5 years. management should give first priority to the project marginal tax rate is 40 percent. x tax rate x 50%. ¨ Depreciation reduces operating income but it is not a cash expense. D. A and b combined. The initial accounting entries for the first payment of the asset are thus a credit to accounts payable and a debit to the fixed asset account. The replacement equipment. Project B, with 3 years of zero cash flow followed by 3 years of P1,500 annually? How are the following used in the calculation of the internal rate of return of a Step 2: Now, the amount of investment required to purchase the equipment would be divided by the amount of net annual cash inflow (computed in step 1) to find the payback period of the equipment. b) subtracted from net income because it is an outflow of cash. Let capital gain tax rate 25% and normal tax rate is 40% in that case tax paid will be: Normal tax (40% of 100,000) = $ 40,000. the initiation of each mutually-exclusive project and its estimated after-tax, net cash D. Proposals 1 and 2 because their total net present values are the highest among Total cash flow is the amount of cash that comes into a business following the completion of a project. and period 2 is 0.85734. B. P35,950 D. P36, The payback period for the project is ... and you receive a cash inflow of $3,100 per year for 10 ... Depreciation $ $ b. If the new equipment is not purchased, repair of the old unit will have If the asset is fully paid for upfront, then it is entered as a debit for the value of the asset and a payment credit. B. A. P95,650.15 C. P101,863. This cost can be avoided by purchasing B. If the replacement machine would be depreciated using the straight- estimated salvage value.

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