1. Jefferson County’s Board of Representatives is considering the purchase of a
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Question
1. Jefferson County’s Board of Representatives is considering the purchase of a site for a new sanitary landfill. The purchase price for the site is $300,000 and preparatory work will cost $75,760. The landfill would be usable for 10 years. The board hired a consultant, who estimated that the new landfill would cost the county $56,000 per year less to operate than the county’s current landfill. The current landfill also will last 10 more years. For a landfill project, Jefferson County can borrow money from the federal government at a subsidized rate. The county’s hurdle rate is only 4 percent for this project.
Compute the net present value of the new landfill.
Calculate the landfill project’s internal rate of return to the nearest whole percent.
2. Portsmouth Printing Corporation recently purchased a truck for $50,000. Under MACRS, the first year’s depreciation was $10,000. The truck driver’s salary in the first year of operation was $74,400. The company’s tax rate is 30 percent.
Required:
Calculate the after tax outflow for the acquisition cost and the salary expense.
Calculate the reduced cash outflow for the taxes in the first year due to the depreciation.
3. The management of Iroquois National Bank is considering an investment in automatic teller machines. The machines would cost $129,250 and have a useful life of seven years. The bank’s controller has estimated that the automatic teller machines will save the bank $27,500 after taxes during each year of their life (including the depreciation tax shield). The machines will have no salvage value.
Compute the payback period for the proposed investment.
Compute the net present value of the proposed investment assuming an after-tax hurdle rate of: (a) 10 percent, (b) 12 percent, and (c) 14 percent.
2. Portsmouth Printing Corporation recently purchased a truck for $50,000. Under MACRS, the first year’s depreciation was $10,000. The truck driver’s salary in the first year of operation was $74,400. The company’s tax rate is 30 percent.
Explanation / Answer
Solution for First Question:-
=IRR( Select all figure in Cashflow Coloum) =8%
Note: Only First question can be solved as per Chegg Policy
a. Computation of NPV Year Cash Flow PVF@4% Present Value 0 -375760 1.0000 -$375,760.00 1 56000 0.9615 $53,846.15 2 56000 0.9246 $51,775.15 3 56000 0.8890 $49,783.80 4 56000 0.8548 $47,869.03 5 56000 0.8219 $46,027.92 6 56000 0.7903 $44,257.61 7 56000 0.7599 $42,555.40 8 56000 0.7307 $40,918.65 9 56000 0.7026 $39,344.86 10 56000 0.6756 $37,831.59 Net Present Value $78,450.16Related Questions
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