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You are considering buying a new tractor that costs $275,000 that is expected to last five years. Apply straight line depreciation to the tractor which will have a salvage value of zero at the end of its useful life. You anticipate being sale the tractor for $30,250 in the five years' time. Your marginal tax rate is 26% and expect a rate of return at 6.25% to your investments. Assume no investment tax credit. Round answers to two places to the right of the decimal. Item Pre-Tax Flow After-Tax Flow Years Growth Rate Discount Rate PV Factor Present Value Machine -275,000 -275,000 0 - 0.0625 1   Depr Shield     1-5 0 0.0625     Terminal Value     5 0 0.0625     NPV               NPC                               Use the information regarding the $275,000 tractor from the previous question to answer the following questions.    What is the pre-tax recovery cost for this tractor?  Hint: Calculate the cost recovery factor first Use the cost recovery factor to annualize the NPC next Once you have annualized the NPC, account for the tax rate to get the pre-tax recovery cost that is asked for initially in this question. All answers should be rounded to two places to the right of the decimal.

You are considering buying a new tractor that costs $275,000 that is expected to last five years. Apply straight line depreciation to the tractor which will have a salvage value of zero at the end of its useful life. You anticipate being sale the tractor for $30,250 in the five years' time. Your marginal tax rate is 26% and expect a rate of return at 6.25% to your investments. Assume no investment tax credit. Round answers to two places to the right of the decimal. Item Pre-Tax Flow After-Tax Flow Years Growth Rate Discount Rate PV Factor Present Value Machine -275,000 -275,000 0 - 0.0625 1   Depr Shield     1-5 0 0.0625     Terminal Value     5 0 0.0625     NPV               NPC                               Use the information regarding the $275,000 tractor from the previous question to answer the following questions.    What is the pre-tax recovery cost for this tractor?  Hint: Calculate the cost recovery factor first Use the cost recovery factor to annualize the NPC next Once you have annualized the NPC, account for the tax rate to get the pre-tax recovery cost that is asked for initially in this question. All answers should be rounded to two places to the right of the decimal.

Essentials Of Investments
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
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You are considering buying a new tractor that costs $275,000 that is expected to last five years. Apply straight line depreciation to the tractor which will have a salvage value of zero at the end of its useful life. You anticipate being sale the tractor for $30,250 in the five years' time. Your marginal tax rate is 26% and expect a rate of return at 6.25% to your investments. Assume no investment tax credit. Round answers to two places to the right of the decimal.

Item Pre-Tax Flow After-Tax Flow Years Growth Rate Discount Rate PV Factor Present Value
Machine -275,000 -275,000 0 - 0.0625 1  
Depr Shield     1-5 0 0.0625    
Terminal Value     5 0 0.0625    
NPV              
NPC              
               

Use the information regarding the $275,000 tractor from the previous question to answer the following questions. 

 

What is the pre-tax recovery cost for this tractor? 

Hint: Calculate the cost recovery factor first

Use the cost recovery factor to annualize the NPC next

Once you have annualized the NPC, account for the tax rate to get the pre-tax recovery cost that is asked for initially in this question.

All answers should be rounded to two places to the right of the decimal. 

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