A start-up biotech company is considering making an investment of $100,000 in a new filtration system. The associated estimates are summarized below: EOY Annual receipts Annual expenses Useful life 8 years Terminal book value (BOY 8) $20,000 Terminal market value $0 Hint: marke value below terminal book value means tax credit. Straight-line depreciation will be used, and the effective income tax rate is 20%. The after-tax MARR is 10% per year. Determine whether this investment is an attractive option for the company. Complete the end of year (EOY) cash flow table and use it to solve the problem BTCF $75,000 $45,000 0 1-8 8 BTCF: Before tax cash flow ATCF: After tax cash flow Depriciation Taxable income Income tax ATCF
A start-up biotech company is considering making an investment of $100,000 in a new filtration system. The associated estimates are summarized below: EOY Annual receipts Annual expenses Useful life 8 years Terminal book value (BOY 8) $20,000 Terminal market value $0 Hint: marke value below terminal book value means tax credit. Straight-line depreciation will be used, and the effective income tax rate is 20%. The after-tax MARR is 10% per year. Determine whether this investment is an attractive option for the company. Complete the end of year (EOY) cash flow table and use it to solve the problem BTCF $75,000 $45,000 0 1-8 8 BTCF: Before tax cash flow ATCF: After tax cash flow Depriciation Taxable income Income tax ATCF
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:A start-up biotech company is considering making an investment of $100,000 in a new filtration system.
The associated estimates are summarized below:
EOY
Annual receipts
Annual expenses
Useful life
8 years
Terminal book value (BOY 8) $20,000
Terminal market value
$0
Hint: marke value below terminal book value means tax credit.
Straight-line depreciation will be used, and the effective income tax rate is 20%. The after-tax MARR is
10% per year. Determine whether this investment is an attractive option for the company.
Complete the end of year (EOY) cash flow table and use it to solve the problem
Taxable
income
BTCF
1-8
8
BTCF: Before tax cash flow
ATCF: After tax cash flow
$75,000
$45,000
Depriciation
Income tax
ATCF
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