Phone Home, Inc. is considering a new 6-year expansion project that requires an initial fixed asset investment of $5.876 million

Consider the following income statement:     What is the amount of the depreciation tax shield?    A.  $23,607 B.  $24,736 C.  $24,598 D.  $26,211 E.  $26,919 Depreciation tax shield = $77,300 × .32 = $24,736

92.

Consider an asset that costs $176,000 and is depreciated straight-line to zero over its 11-year tax life. The asset is to be used in a 7-year project; at the end of the project, the asset can be sold for $22,000. The relevant tax rate is 30 percent. What is the aftertax cash flow from the sale of this asset?    A.  $31,800 B.  $32,600 C.  $33,300 D.  $34,100 E.  $34,600 Book value at end of year 7 = $176,000 × 4/11 = $64,000 Aftertax salvage value = $22,000 + [($64,000 - $22,000) × .30] = $34,600

93.

Phone Home, Inc. is considering a new 6-year expansion project that requires an initial fixed asset investment of $5.876 million. The fixed asset will be depreciated straight-line to zero over its 6-year tax life, after which time it will be worthless. The project is estimated to generate $5,328,000 in annual sales, with costs of $2,131,200. The tax rate is 32 percent. What is the annual operating cash flow for this project?    A.  $1,894,318 B.  $2,211,407 C.  $2,487,211 D.  $2,663,021 E.  $2,848,315 OCF = (5,328,000 - $2,131,200)(1 - 0.32) + ($5,876,000/6)(0.32) = $2,487,211