Question 1: A company makes an investment of $150,000 with a useful life of 10 years and expects to use this investment to generate $300,000 in sales with $280,000 in incremental operating costs. If the company operates in an environment with a 30 % tax rate, what are the expected after tax cash flows that the company will use to evaluate the capital investment decision?
Question 2. Preston Co is evaluating its potential investment in a $240,000 piece of equipment with a 3 year life and no salvage value. The company's hurdle rate is 10 percent and it anticipates taht pre-tax cash flows in each of the 3 years will equal 20%, 40%, and 60%, respectively, of the investment's face value. The tax rate is 30%. Discounted pre-tax cash flows are $429,953, undiscounted after-tax cash flows are $273,600, and discounted after-tax cash flows are $221,414. The net present value of the investment is:
Question 3. Preston Co is evaluating its potential investment in a $225,660 piece of equipment with a 3 year life and no salvage value. The company anticipates that pre-tax cash flows in each of the 3 years will equal to 22%, 44%, and 66%, respectively, of the investment's face value. The tax rate is 28%. Pre-tax cash flows, discounted at 10 percent, are $427,697, undiscounted after-tax cash flows are $279.185, and after-tax cash flows, discounted at 10 percent, are $225,660. The internal rate of return is: