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Abbott placed into service a flexible manufacturing cell costing $860,000 early this year. They financed $425,000 of the initial cost of the cell at 11% per year over 5 years. Gross income due to the cell is expected to be $750,000 with deductible expenses of $465,000. Depreciation is based on MACRS-GDS, and the cell is in the 7-year property class. Abbott's marginal tax rate is 25%, MARR is 9% after taxes, and they expect to keep the cell for 8 years. Determine the PW, FW, AW, IRR, and ERR for the investment if: a. The loan is paid back using Method 1 (interest only at the end of each year of the loan, plus principal at the end of the last year). b. The loan is paid back using Method 2 (equal annual principal payments plus interest on the unpaid loan balance). c. The loan is paid back using Method 3 (equal annual principal plus interest payments during each year of the loan). d. The loan is paid back using Method 4 (principal plus interest is paid at the end of the loan period).

Abbott placed into service a flexible manufacturing cell costing $860,000 early this year. They financed $425,000 of the initial cost of the cell at 11% per year over 5 years. Gross income due to the cell is expected to be $750,000 with deductible expenses of $465,000. Depreciation is based on MACRS-GDS, and the cell is in the 7-year property class. Abbott's marginal tax rate is 25%, MARR is 9% after taxes, and they expect to keep the cell for 8 years. Determine the PW, FW, AW, IRR, and ERR for the investment if: a. The loan is paid back using Method 1 (interest only at the end of each year of the loan, plus principal at the end of the last year). b. The loan is paid back using Method 2 (equal annual principal payments plus interest on the unpaid loan balance). c. The loan is paid back using Method 3 (equal annual principal plus interest payments during each year of the loan). d. The loan is paid back using Method 4 (principal plus interest is paid at the end of the loan period).

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
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Abbott placed into service a flexible manufacturing cell costing $860,000 early this year. They financed $425,000 of the initial cost of the cell at 11% per year over 5 years. Gross income due to the cell is expected to be $750,000 with deductible expenses of $465,000. Depreciation is based on MACRS-GDS, and the cell is in the 7-year property class. Abbott's marginal tax rate is 25%, MARR is 9% after taxes, and they expect to keep the cell for 8 years. Determine the PW, FW, AW, IRR, and ERR for the investment if: a. The loan is paid back using Method 1 (interest only at the end of each year of the loan, plus principal at the end of the last year). b. The loan is paid back using Method 2 (equal annual principal payments plus interest on the unpaid loan balance). c. The loan is paid back using Method 3 (equal annual principal plus interest payments during each year of the loan). d. The loan is paid back using Method 4 (principal plus interest is paid at the end of the loan period). a. Method 1 $ b. Method 2 $ c. Method 3 $ d. Method 4 $ PW $ $ tA $ $ FW $ $ $ $ AW IRR % do % % %
Transcribed Image Text:Abbott placed into service a flexible manufacturing cell costing $860,000 early this year. They financed $425,000 of the initial cost of the cell at 11% per year over 5 years. Gross income due to the cell is expected to be $750,000 with deductible expenses of $465,000. Depreciation is based on MACRS-GDS, and the cell is in the 7-year property class. Abbott's marginal tax rate is 25%, MARR is 9% after taxes, and they expect to keep the cell for 8 years. Determine the PW, FW, AW, IRR, and ERR for the investment if: a. The loan is paid back using Method 1 (interest only at the end of each year of the loan, plus principal at the end of the last year). b. The loan is paid back using Method 2 (equal annual principal payments plus interest on the unpaid loan balance). c. The loan is paid back using Method 3 (equal annual principal plus interest payments during each year of the loan). d. The loan is paid back using Method 4 (principal plus interest is paid at the end of the loan period). a. Method 1 $ b. Method 2 $ c. Method 3 $ d. Method 4 $ PW $ $ tA $ $ FW $ $ $ $ AW IRR % do % % %
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