6a. A large profitable corporation is considering a capital investment of $50,000. The equipment has a projected salvage value of $0 at the end of the two-year project period. The annual gross income each of the next two years is projected to be $44,000 and expenses are projected to be $14,000 annually. The depreciation amount will be $25,000 annually. This profitable corporation has an incremental income tax rate of 25% and the MARR is 10%. The corporation has decided to use borrowed capital to finance a portion of the equipment purchase. It will pay $30,000 down and finance the balance at an effective interest rate of 5%, to be repaid in two equal end-of-year payments (see loan details below). Payment BoY EoY Year Balance Total Interest Principal Balance $30,000.00 $16,134.15 $1,500.00 $14,634.15 $15,365.85 15,365.85 16,134.15 32,268.29 768.29 15,365.85 0.00 2,268.29 30,000.00 termine the before-tax CF for Year 2 (only - not the total).
6a. A large profitable corporation is considering a capital investment of $50,000. The equipment has a projected salvage value of $0 at the end of the two-year project period. The annual gross income each of the next two years is projected to be $44,000 and expenses are projected to be $14,000 annually. The depreciation amount will be $25,000 annually. This profitable corporation has an incremental income tax rate of 25% and the MARR is 10%. The corporation has decided to use borrowed capital to finance a portion of the equipment purchase. It will pay $30,000 down and finance the balance at an effective interest rate of 5%, to be repaid in two equal end-of-year payments (see loan details below). Payment BoY EoY Year Balance Total Interest Principal Balance $30,000.00 $16,134.15 $1,500.00 $14,634.15 $15,365.85 15,365.85 16,134.15 32,268.29 768.29 15,365.85 0.00 2,268.29 30,000.00 termine the before-tax CF for Year 2 (only - not the total).
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:6a. A large profitable corporation is considering a capital investment of $50,000. The equipment has a projected salvage value of $0 at the end of the
two-year project period. The annual gross income each of the next two years is projected to be $44,000 and expenses are projected to be $14,000
annually. The depreciation amount will be $25,000 annually. This profitable corporation has an incremental income tax rate of 25% and the MARR is
10%.
The corporation has decided to use borrowed capital to finance a portion of the equipment purchase. It will pay $30,000 down and finance the
balance at an effective interest rate of 5%, to be repaid in two equal end-of-year payments (see loan details below).
Payment
BoY
EoY
Year
Balance
Total
Interest
Principal
Balance
1
$30,000.00 $16,134.15 $1,500.00 $14,634.15 $15,365.85
16,134.15
32,268.29
15,365.85
30,000.00
2
15,365.85
768.29
0.00
2,268.29
Determine the before-tax CF for Year 2 (only - not the total).
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