An investment in equipment with a 5-year MACRS property class is being considered. The operating cash flows are shown in the table below, and at the end of year 6 the equipment will be sold for 9% of the purchase price. The firm has a combined tax rate of 32% and an after-tax interest rate of 6%, Cash Flows Operating Cash Flows $ -15,000 $ 1700 $ 2600 $ 2800 $ 3200 $ 3450 Year 1 3 4 5 6 $ 2050 What is the allowable depreciation in year 3? What will the company pay in capital gains tax at the end of year 6? What is the net present value of the investment on an after-tax basis?
An investment in equipment with a 5-year MACRS property class is being considered. The operating cash flows are shown in the table below, and at the end of year 6 the equipment will be sold for 9% of the purchase price. The firm has a combined tax rate of 32% and an after-tax interest rate of 6%, Cash Flows Operating Cash Flows $ -15,000 $ 1700 $ 2600 $ 2800 $ 3200 $ 3450 Year 1 3 4 5 6 $ 2050 What is the allowable depreciation in year 3? What will the company pay in capital gains tax at the end of year 6? What is the net present value of the investment on an after-tax basis?
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
Related questions
Question
7
Transcribed Image Text:An investment in equipment with a 5-year MACRS property class is being considered.
The operating cash flows are shown in the table below, and at the end of year 6 the equipment will be sold for 9% of the purchase price.
The firm has a combined tax rate of 32% and an after-tax interest rate of 6%,
Cash Flows
Year
Operating Cash Flows
$-15,000
1
$ 1700
2
$ 2600
$ 2800
$ 3200
$ 3450
3
4
5
6
$ 2050
What is the allowable depreciation in year 3?
What will the company pay in capital gains tax at the end of year 6?
What is the net present value of the investment on an after-tax basis?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 5 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education