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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3. Consider a project with an initial investment of $60,000, a 8 year useful life (and study period), and a $9,000 salvage value. You expect an annual net revenue of $14,000 (before tax), a MARR before tax of 15%, and an effective tax rate of 35%. The capital equipment is to be depreciated using MACRS ADS and a 7 year class life, Using after-tax cash flow analysis, determine if this is a good investment.
48) Management expects a project to generate EBIT of $600,000 per year for 4 years.Depreciation expense is expected to be $225,000 per year and the corporation’s tax rateis 40%. The project will require an increase in net working capital of $50,000 in yearone and allow a decrease in net working capital of $25,000 in year four. The capitalexpenditure for the project will occur in year zero. What is the free cash flow for theproject in year one?
ABC is considering investing in two machines; Machine A and Machine B with initial investments of $4,000,000 and $5,000,000 respectively. Each project is expected to have a life of five (5) years. The after tax profits generated by the projects are as follows: Machine A Machine B After tax profits $ $ Year 1 1 000 000 1 400 000 Year 2 1 200 000 1 500 000 Year 3 1 300 000 1 600 000 Year 4 1 200 000 1 400 000 Year 5 1 000 000 1 200 000 Required: Calculate the average profit for each project.
4
A corporate expects to receive $37,399 each year for 15 years if a particular project is undertaken. There will be an initial investment of $105,308. The expenses associated with the project are expected to be $7,716 per year. Assume straight-line depreciation, a 15- year useful life, and no salvage value. Use a combined state and federal 48% marginal tax rate, MARR of 8%, determine the project's after-tax net present worth. Enter your answer as follow: 123456.78
Plant company is contemplating the purchase of a new piece of equipment for $59,000. Plant is in the 20% income tax bracket.
A corporate expects to receive $35,900 each year for 15 years if a particular project is undertaken. There will be an initial investment of $121,595. The expenses associated with the project are expected to be $7,608 per year. Assume straight-line depreciation, a 15-year useful life, and no salvage value. Use a combined state and federal 48% marginal tax rate, MARR of 8%, determine the project's after-tax net present worth.
Project Beta is a 7-year project which requires an initial outlay of $6,000. This outlay will be depreciated using straight-line depreciation over the life of the project. It will generate incremental revenue of $2400 per year and incremental costs (excluding depreciation) of $300. The tax rate is 35%. What is the project's annual after-tax incremental earnings? Question 3Answer a. $135 b. $808 c. $251 d. $435
3.) A project is estimated to cost $350,000, last 9 years, and have a salvage value of $90,000. The annual gross income is expected to average $54,000 and annual expenses excluding depreciation is $8,000. If capital is earning 15% before income taxes, determine if this is desirable investment using both PW and AW.
A corporation expects to receive $32,000 each year for 15 years if a particular project is undertaken. There will be an initial investment of $150,000. The expenses associated with the project are expected to be $7500 per year. Assume straight-line depreciation, a 15-year useful life, and no salvage value. Use a combined state and federal 28% marginal tax rate, and determine the project’s after-tax rate of return.
Example: A corporation is contemplating the purchase of some specialized machinery. The machinery will cost $250,000 and will be depreciated over its five year life by using the straight line method. Annual inflows of $300,000 and cash operating expenses of $220,000 are anticipated as a result of this new machinery. The corporation is subject to a 40 percent income tax rate. The payback period on this investment (rounded to the nearest tenth) is:

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