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nvestment d on a 5-ye R of 5%, cc sh flow un The invest

nvestment d on a 5-ye R of 5%, cc sh flow un The invest

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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10)U.) A $20,000 investment in machinery is under consideration. The project is ex- pected to have a life of 6 years and no salvage value. The estimated annual in- come from the project is $10,000 with annual operating expenses of $4,000. The investment will be depreciated by the MACRS (GDS) straight-line method based on a 5-year recovery period. If a 40% income tax rate is applied with a MARR of 5%, compute the present worth on the proposed investment's after- tax cash flow under the following financial policies: The investment is provided from the firm's retained earnings. The initial investment is borrowed at 10% with repayment of interest at the end of each period and repayment of the loan principal at the end а. b. of 5 years. Repeat parts (a) and (b) for a MARR of 9%. с.
Transcribed Image Text:10)U.) A $20,000 investment in machinery is under consideration. The project is ex- pected to have a life of 6 years and no salvage value. The estimated annual in- come from the project is $10,000 with annual operating expenses of $4,000. The investment will be depreciated by the MACRS (GDS) straight-line method based on a 5-year recovery period. If a 40% income tax rate is applied with a MARR of 5%, compute the present worth on the proposed investment's after- tax cash flow under the following financial policies: The investment is provided from the firm's retained earnings. The initial investment is borrowed at 10% with repayment of interest at the end of each period and repayment of the loan principal at the end а. b. of 5 years. Repeat parts (a) and (b) for a MARR of 9%. с.
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