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20 numerical questions worth 1 mark each 5 questions from Unit 5 (Ch.7 and sections 14.2, 14.3: Stocks) 5 questions from Unit 6 (Ch.8: NPV) 5 questions from Unit 7 (Ch.9: DCF) 5 questions from Unit 8 (Ch.10: Project Analysis) 5 conceptual questions worth 1 mark each will come from Units 5 to 8 Midterm Exam 2 Tutorials Please note: *Both sessions cover the same tutorial questions file «Zoom meeting invitations will be posted on Moodle a couple of days prior to the sessions *A midterm 2 tutorial questions file will be posted a week prior to the Zoom session *The Solutions file will be posted on Moodle after the second session is completed. Midterm 2 Exam Date: Sunday July 19: 2pm -3:30pm : Delivery Session Date Time Material Leader Method Alex K. 1 Friday July 10 S5pm-7pm Units 5to 8 ex Zoom Material Leader Delivery Session Date Time Method . ) Alex K. 1 Friday August 7 5pm to 7pm Units 9 to 12 Zoom : Alex K. 2 Saturday August 8 10am to Nobn Units 9 to 12 Zoom Incremental cash flow = cash flow with project — cash flow without project Total project cash flows = cash flow from investment in plant and equipment + cash flow from investment in working capital + cash flow from operations, including e operating cash flows e CCA tax shield There are three equivalent wayvs to compute the cash flow from operations: 1) Method 1: Cash flow from operations = revenues — cash expenses — taxes paid 2) Merthod 2: Cash flow from operations = net profit + depreciation 3) Merhod 3: Cash flow from operations = (revenues — cash expenses) x (1 — tax rate) + (depreciation x tax rate) Taxable income = revenues — expenses — CCA CCA tax shield = CCA x tax rate cd ).57 Sd Present value of CCA tax shield with the half-year rule = gte | 1+00 ] #a, )= r+d 1+ 7 d+r || 1+ NPV = Total PV excluding CCA tax shield + PV of CCA tax shield
1. Afirm is considering a new project.To get the project going, it will require an immediate cash outlay of $15 million for equipment and $750,000 of grading expenses for the land. It already owns the land which cost $7 million six years ago and has an $8.1 million current market value. The proper cash flow amount to use for year zero in evaluating this project for capital budgeting purposes is: A) $23,850,000 B) $23,100,000 C) $30,850,000 D) $22,000,000 E) $22,750,000 Solution: A Cash flow = $8,100,000 + 15,000,000 + 750,000 Cash flow = $23,850,000 Solution: C PV of CCA tax shield = $36,573.18 cdr, [1+0.5r]_ Sdr, =1 r+d d+r (1+r)’ 150 ,000 x 0.3 x 0.35 |:1+ (0.5x0.10 )]_ (10,000 ). 3)(.35) 0.10 +0.3 1+0.10 (3+.10)1+0.10)" 1+r 1> Answer: B PV of Buying the machinery: 80,000 + 10,000 x annuity factor(12%, 4 years) — 20,000/(1.12)* = 80,000 + 30,373 — 12,710 = $97,663. The equivalent annual cost of buying the machinery can be calculated as N =4;r=12%: FV = 0; PV = 97,663; compute = $32,154. If you can rent instead for $30,000, then this is the less costly option. Therefore, you are $32,154 - $30,000 = $2,154 better off by leasing the machinery.
Answer: D Sales from “Y” = 12 million x $25 = $300 million Cost of “Y” = 12 million x $8 = $96 million. Cash flow from “Y” = $300 million - $96 million = $204 million Lost sales “X” =7 million x $20 = $140 million Saved costs from “X” = 7 million x $6 = $42 million. Cash flow lost from “X” = $140 million - $42 million = $98 million Incremental Cash flow = $204 million — $98 million = $106 million Solution: E Annual savings 125,000 —Annual Op. Cost 35,000 Net Savings (excluding CCA) 90,000 —Taxes (35%) 31,500 After tax savings (excluding CCA) 58,500 PV of CCA tax shield (PVCCATS): _1,000,000x0.25x0.35 1+(0.5x0.10)] 1oo,ooo><o.25><o.35>< 1 0.10+0.25 1+0.10 [:0.25+0.10 (1+0.10)10 — 87,500 [1.05] . [8,750 e Ll e Y 3855] = 238,636.36 — 9,637.50 = $ 228,998.86 NPV =-1,000,000 + 228,998.86 + 58,500 x annuity factor (10%, 10 years) +100,000/(1.10)10 = -$372,987.71 Answer: E Cash flow year 0 = -830,000 After tax cash flows in years 1 through 5 = 455,000(1 - .37) = $286,650 PV of CCATS = 850,000(.3) (.37) x (1 +.5(.12)) .30 +.12 1+.12 = $207,606 NPV = -830,000 + 286,650 x PVIFA (5, 12%) + 207,606 = $410,915
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State income taxes
Exercise 12-22 (Algorithmic) (LO. 2, 3, 5)
Yanni, who is single, provides you with the following information for 2021:
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Print Item
Mortgage interest expense on principal
residence
Charitable contributions
Interest income
a. Yanni's taxable income:
b. Yanni's AMT base:
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Click here to access the exemption table. If required, round your answers to the nearest dollar.
Compute the following:
c. Yanni's tentative minimum tax:
$117,400
11,740
10,566
2,348
1,761
94,507
32,647
X +
8,488
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