2D1B SKYTOP INDUSTRIES IS ANALYZING A CAPITAL INVESTMENT PROJECT USIN...
295.
CSO: 2D1b
LOS: 2D1b
Skytop Industries is analyzing a capital investment project using discounted cash flow
(DCF) analysis. The new equipment will cost $250,000. Installation and transportation
costs aggregating $25,000 will be capitalized. Existing equipment will be sold
immediately after installation of the new equipment. The existing equipment has a tax
basis of $100,000 and an estimated market value of $80,000. Skytop estimates that the
new equipment’s capacity will generate additional receivables and inventory of $30,000,
while payables will increase by $15,000. Annual incremental pre-tax cash inflows are
estimated at $75,000. Skytop’s effective income tax rate is 40%. Total after-tax cash
outflows occurring in Year 0 would be
a.
$177,000.
b.
$182,000.
c.
$198,000.
d.
$202,000.