
(a)
The after tax

Answer to Problem 17P
The internal rate if return is
Explanation of Solution
Given:
The cost of installing a machine is
The useful life is 20 years.
Salvage value is
Per month income is
Per month expenses is
Interest rate is
Concept used:
Write the expression for straight line
Here, cost of installing is
Write the expression for taxable income.
Here, before tax cash flow is
Write the expression for income tax.
Here, taxable income is
Write the expression for after tax cash flow.
Write the expression for after tax rate of return.
Here, the present value of the annuity is
Write the expression for rate of return by linear interpolation.
Here, the internal rate of return is
If after-tax
If after-tax
Calculation:
Calculate the depreciation of the machine.
Substitute
The depreciation charged in the machine would be
Calculate the before tax cash flow.
Here, the before tax cash flow is BTCF.
Calculate the taxable income.
Substitute
Calculate the income tax.
Substitute
Calculate the after tax cash flow.
Substitute
The table for computation of the after tax rate of return for investment is shown below.
(a) | (b) | (c) | (d) | (e) | |
Year | Before tax cash flow | Depreciation | Taxable Income |
Income tax |
After tax cash flow |
6 | |||||
7 | |||||
8 | |||||
9 | |||||
10 | |||||
11 | |||||
12 | |||||
13 | |||||
14 | |||||
15 | |||||
16 | |||||
17 | |||||
18 | |||||
19 | |||||
20 |
Table (1)
Calculate the after tax rate of return.
Substitute
Solve the equation for
The internal rate if return is
Conclusion:
The internal rate if return is
(b)
The after tax rate of return for the investment.

Answer to Problem 17P
The internal rate if return is
Explanation of Solution
Given:
The cost of installing a machine is
The useful life is 20 years.
Salvage value is
The market price is
Per month income is
Per month expenses is
Interest rate is
Calculation:
Calculate the depreciation of the machine.
Substitute
The depreciation charged in the machine would be
Calculate the before tax cash flow.
Calculate the taxable income.
Substitute
Calculate the income tax.
Substitute
Calculate the after tax cash flow.
Substitute
The table for computation of the after tax rate of return for investment is shown below.
(a) | (b) | (c) | (d) | (e) | |
Year | Before tax cash flow | Depreciation | Taxable Income |
Income tax |
After tax cash flow |
6 | |||||
7 | |||||
8 | |||||
9 | |||||
10 | |||||
11 | |||||
12 | |||||
13 | |||||
14 | |||||
15 | |||||
16 | |||||
17 | |||||
18 | |||||
19 | |||||
20 |
Table (1)
Calculate the after tax rate of return.
Substitute
Solve the equation for
The internal rate if return is
Conclusion:
The internal rate if return is
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Chapter 12 Solutions
ENGR.ECONOMIC ANALYSIS
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