CFIN
6th Edition
ISBN: 9780357144039
Author: BESLEY
Publisher: CENGAGE L
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Chapter 10, Problem 1PROB
Summary Introduction
MACRS stands for modified accelerated cost recovery system. Life of the asset will be classified as per the internal revenue code.
Three years MACRS rates, Year 1: 33.33%, Year 2: 44.45%, Year 3: 14.81% and Year 4: 7.41%.
CWC bought machine that is expected to generate $25,000 in operating income before
Expert Solution & Answer
Explanation of Solution
a.
Calculate the after tax operating income as follows:
Formulas:
b.
Calculate the operating cash flows for year 1 as follows:
Therefore, the operating cash flows in year 1 is
Calculate the operating cash flows for year 2 as follows:
Therefore, the operating cash flows in year 2 is
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3. After discussing things with a bank, the family learned that they can (1) refinance the remaining $15 comma 400 amount on the vehicle 1 at 13%, over 4 years, (2) refinance the remaining $8500 loan amount on the vehicle 2 at 13%, over 3 years, (3) refinance the remaining $119 comma 900 loan amount on their home at 5%, over 25 years, and (4) reduce their car insurance payments by $30 per month. Complete the following table.
(Round to the nearest cent as needed. Do not include the $ symbol in your answer.)
Part 9Part 10Part 11Part 12Part 13Part 14
Item
Current Loan Amount
New Interest Rate
New Term of Loan
New Monthly Payment
Motor vehicle 1
$
enter your response here
enter your response here%
enter your response here years
$
enter your response here
Motor vehicle 2
$
enter your response here
enter your response here%
enter your response here years
$
enter your response here
Home
$
enter your response here
enter your response here%…
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