First Chance Company is considering purchasing a bulldozer. The bulldozer will cost $125,000 and will have an estimated salvage value of $35,000 at the end of five years. The asset will generate annual before-tax revenues of $75,000 over the next five years. The asset is depreciated at a CCA rate of 30%. The marginal tax rate is 35% and the firm's market interest rate is known to be 12%. All dollar figures represent constant dollars and are responsive to the general inflation rate f a) With f = 5%, compute the after-tax cash flows in actual dollars. b) Suppose the initial cost of the porrect will be financed trhough a local bank at an interest rate of 10%. With this additional condition, recalculate the after-tax cash flows in actual dollars.
First Chance Company is considering purchasing a bulldozer. The bulldozer will cost $125,000 and will have an estimated salvage value of $35,000 at the end of five years. The asset will generate annual before-tax revenues of $75,000 over the next five years. The asset is depreciated at a CCA rate of 30%. The marginal tax rate is 35% and the firm's market interest rate is known to be 12%. All dollar figures represent constant dollars and are responsive to the general inflation rate f a) With f = 5%, compute the after-tax cash flows in actual dollars. b) Suppose the initial cost of the porrect will be financed trhough a local bank at an interest rate of 10%. With this additional condition, recalculate the after-tax cash flows in actual dollars.
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 5PB: Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated...
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