(a)
The before tax
Answer to Problem 76P
The before tax rate of return, ignoring inflation is
Explanation of Solution
Given:
Initial Amount is
Interest per year is
The MARR is
Inflation rate is
Maturity amount received is
Calculation:
Calculate the return from interest every year.
Make the table for cash flows.
Year | Before tax Cash flow |
Taxable income |
Income tax charge |
After tax Cash flow |
InflationFactor |
Present Value at year |
Write the expression to calculate the before tax rate of return.
Here, the present value is P, the return from interest every year is A, the interest rate is i, the maturity amount is F and the time period is n.
Substitute
Solve the equation for the value of
Conclusion:
Thus, the before tax rate of return, ignoring inflation is
(b)
The after tax rate of return, ignoring inflation.
Answer to Problem 76P
The after tax rate of return, ignoring inflation is
Explanation of Solution
Calculation:
Calculate the after tax rate of return.
Substitute
Solve the equation for the value of
Conclusion:
The after tax rate of return, ignoring inflation is
(c)
The after tax rate of return, after taking inflation into account.
Answer to Problem 76P
The after tax rate of return, after taking inflation into account is
Explanation of Solution
Calculation:
Write the expression to calculate the after tax rate of return including inflation.
Substitute
Solve the equation for the value of
Conclusion:
Thus, the after tax rate of return, after taking inflation into account is
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Chapter 14 Solutions
ENGINEERING ECO ANALYSIS W/STUDY GUIDE
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