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A tractor for over-the-road hauling is to be purchased by AgriGrow for $90,000. It is expected to be of use to the company for 6 years, after which it will be salvaged for $4,000. Transportation cost savings are expected to be $170,000 per year; however, the cost of drivers is expected to be $70,000 per year, and operating expenses are expected to be $63,000 per year, including fuel, maintenance, insurance, and the like. The company's marginal tax rate is 25 percent, and MARR is 10 percent on after-tax cash flows. Suppose that, to AgriGrow's surprise, they actually dispose of the tractor at the end of the fourth tax year for $6,000. Develop tables using a spreadsheet to determine the ATCF for each year and the after-tax PW, AW, IRR, and ERR after only 4 years. Click here to access the TVM Factor Table Calculator Part a Use straight-line depreciation (no half-year convention). End of Year ATCF 0 1 2 3 4 $ After-tax IRR: $ After-tax ERR: $ $ After-tax PW: $ After-tax AW: $ $ For dollar amounts, carry all interim calculations to 5 decimal places and then round your final answer to the nearest dollar. The tolerance is ±10. -90000 % 15.1 %

A tractor for over-the-road hauling is to be purchased by AgriGrow for $90,000. It is expected to be of use to the company for 6 years, after which it will be salvaged for $4,000. Transportation cost savings are expected to be $170,000 per year; however, the cost of drivers is expected to be $70,000 per year, and operating expenses are expected to be $63,000 per year, including fuel, maintenance, insurance, and the like. The company's marginal tax rate is 25 percent, and MARR is 10 percent on after-tax cash flows. Suppose that, to AgriGrow's surprise, they actually dispose of the tractor at the end of the fourth tax year for $6,000. Develop tables using a spreadsheet to determine the ATCF for each year and the after-tax PW, AW, IRR, and ERR after only 4 years. Click here to access the TVM Factor Table Calculator Part a Use straight-line depreciation (no half-year convention). End of Year ATCF 0 1 2 3 4 $ After-tax IRR: $ After-tax ERR: $ $ After-tax PW: $ After-tax AW: $ $ For dollar amounts, carry all interim calculations to 5 decimal places and then round your final answer to the nearest dollar. The tolerance is ±10. -90000 % 15.1 %

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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## Investment Analysis of AgriGrow's Tractor Purchase A tractor for over-the-road hauling is to be purchased by AgriGrow for $90,000. It is expected to serve the company for 6 years, after which it will be salvaged for $4,000. Transportation cost savings are anticipated to be $170,000 annually. However, driver costs are expected to be $70,000 per year, and operating expenses—covering fuel, maintenance, insurance, etc.—are projected to be $63,000 per year. The company’s marginal tax rate is 25%, and the Minimum Attractive Rate of Return (MARR) is 10% on after-tax cash flows. Suppose that, unexpectedly, AgriGrow sells the tractor at the end of the fourth tax year for $6,000. Using a spreadsheet, develop tables to determine the After-Tax Cash Flow (ATCF) for each year and the after-tax Present Worth (PW), Annual Worth (AW), Internal Rate of Return (IRR), and External Rate of Return (ERR) after only 4 years. ### Calculations #### Use straight-line depreciation (no half-year convention). | End of Year | ATCF | |-------------|------| | 0 | $-90,000 | | 1 | | | 2 | | | 3 | | | 4 | | - **After-tax Present Worth (PW):** - **After-tax Annual Worth (AW):** ### Note For dollar amounts, carry all interim calculations to 5 decimal places and round the final answer to the nearest dollar. The tolerance is ±$10. - **After-tax Internal Rate of Return (IRR):** - **After-tax External Rate of Return (ERR):** 15.1% [Click here to access the TVM Factor Table Calculator](#).
Transcribed Image Text:## Investment Analysis of AgriGrow's Tractor Purchase A tractor for over-the-road hauling is to be purchased by AgriGrow for $90,000. It is expected to serve the company for 6 years, after which it will be salvaged for $4,000. Transportation cost savings are anticipated to be $170,000 annually. However, driver costs are expected to be $70,000 per year, and operating expenses—covering fuel, maintenance, insurance, etc.—are projected to be $63,000 per year. The company’s marginal tax rate is 25%, and the Minimum Attractive Rate of Return (MARR) is 10% on after-tax cash flows. Suppose that, unexpectedly, AgriGrow sells the tractor at the end of the fourth tax year for $6,000. Using a spreadsheet, develop tables to determine the After-Tax Cash Flow (ATCF) for each year and the after-tax Present Worth (PW), Annual Worth (AW), Internal Rate of Return (IRR), and External Rate of Return (ERR) after only 4 years. ### Calculations #### Use straight-line depreciation (no half-year convention). | End of Year | ATCF | |-------------|------| | 0 | $-90,000 | | 1 | | | 2 | | | 3 | | | 4 | | - **After-tax Present Worth (PW):** - **After-tax Annual Worth (AW):** ### Note For dollar amounts, carry all interim calculations to 5 decimal places and round the final answer to the nearest dollar. The tolerance is ±$10. - **After-tax Internal Rate of Return (IRR):** - **After-tax External Rate of Return (ERR):** 15.1% [Click here to access the TVM Factor Table Calculator](#).
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