ABC corporation wants to expand its operations with a new metal bender. The bender is expected to have a purchase price of $10 Million and an installation cost of $2 Million. The bender will require new inventory of $4 Million, of which 50% will be on credit. The bender will be depreciated to zero salvage. The proposed project’s initial investment is _________.

a. 14 million
b. 12 million
c. 10 million
d. 8 million

Your company has an existing 5 year old piece of equipment it wishes to sell. The purchase price was $37,000. The company paid $500 to have it shipped, $2,000 to have it installed plus an additional $6,000 in working capital to initially operate the machine. Tour company doesn’t believe the machine fits the current operational agenda of the company. You think the machine can now be sold for $7,500. The machine is being depreciated straight line to $4,000 salvage over 6 years. Your company is in the 40% tax bracket. Assuming you could sell the machine today, what would be the tax effect on the sale?

a. $3,400 tax loss form of capital gain
b. $1,000 tax payment from depreciation recapture
c. $600 tax payment from depreciation recapture
d. $1,000 tax gain from capital loss

The numbers a firm must have in order to determine the tax situation on the sale of an asset are which of the following?

a. The net working capital required when the asset was purchased
b. The expected sale price of the asset
c. The book value of the asset
d. All of the above

Which of the following is important to operating after tax cash flow estimation?
a. Depreciation method
b. Project’s expected operating expense
c. Projects expected revenue
d. Taxes
e. All of the above

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