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.
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:6. 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.
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