8a. 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, to be repaid in two equal end-of-year $16,134.15 payments. The interest payment in Year 1 is $1500. The projections are based on current economic conditions without consideration of price or cost escalations. Nevertheless, a general inflation rate of 4% is expected, and it is anticipated that all future costs and revenues will react to this inflation. Determine the before-tax CF (retained earnings only, in constant dollars) for Year 1 (only).
8a. 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, to be repaid in two equal end-of-year $16,134.15 payments. The interest payment in Year 1 is $1500. The projections are based on current economic conditions without consideration of price or cost escalations. Nevertheless, a general inflation rate of 4% is expected, and it is anticipated that all future costs and revenues will react to this inflation. Determine the before-tax CF (retained earnings only, in constant dollars) for Year 1 (only).
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Answer ASAP please write the formula used please.
Transcribed Image Text:8a. 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, to be repaid in two equal end-of-year $16,134.15 payments. The interest payment in Year 1 is $1500.
The projections are based on current economic conditions without consideration of price or cost escalations. Nevertheless, a general inflation rate of
4% is expected, and it is anticipated that all future costs and revenues will react to this inflation.
Determine the before-tax CF (retained earnings only, in constant dollars) for Year 1 (only).
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