6.A large profitable corporation is considering a capital investment of $50,000. The equipment has a projected salvage value of $0 at the end ofthe two-year project period. The annual gross income each of the next two years is projected to be $44,000 and expenses are projected to be$14,000 annually. The depreciation amount will be $25,000 annually. This profitable corporation has an incremental income tax rate of 25% andthe MARR is 10%.The corporation has decided to use borrowed capital to finance a portion of the equipment purchase. It will pay $30,000 down and finance thebalance at an effective interest rate of 5%, to be repaid in two equal end-of-year payments (see loan details below).PaymentBoYEoYYearBalanceTotalPrincipal$1,500.00 $14,634.15 $15,365.85InterestBalance1$30,000.00 $16,134.1515,365.8516,134.15768.2915,365.850.0032,268.292,268.2930,000.00Determine the before-tax CF for Year 2 (only - not the total).

For calculation of before tax cash flows, depreciation shall not be deducted because it is a non…

Answered: portion of the equipment purchase. It w…

Business

Accounting

portion of the equipment purchase. It w al end-of-year payments (see loan deta Payment FoY

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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Question

6.A large profitable corporation is considering a capital investment of $50,000. The equipment has a projected salvage value of $0 at the end of
the two-year project period. The annual gross income each of the next two years is projected to be $44,000 and expenses are projected to be
$14,000 annually. The depreciation amount will be $25,000 annually. This profitable corporation has an incremental income tax rate of 25% and
the MARR is 10%.
The corporation has decided to use borrowed capital to finance a portion of the equipment purchase. It will pay $30,000 down and finance the
balance at an effective interest rate of 5%, to be repaid in two equal end-of-year payments (see loan details below).
Payment
BoY
EoY
Year
Balance
Total
Principal
$1,500.00 $14,634.15 $15,365.85
Interest
Balance
1
$30,000.00 $16,134.15
15,365.85
16,134.15
768.29
15,365.85
0.00
32,268.29
2,268.29
30,000.00
Determine the before-tax CF for Year 2 (only - not the total).

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