cash flow basis for the machine is estimated to be $20,000 per year over 6 years
ID: 2548547 • Letter: C
Question
cash flow basis for the machine is estimated to be $20,000 per year over 6 years. With a tax rate of 35% and a minimum attractive rate of return (MARR) of 10%, compute the after-tax cash flow net present value using straight-line depreciation. There is 0 salvage value. Is this a favorable after-tax investment? Show your results in a table with column headings shown below, include a sample calculation for one row and for the after-tax net present value Year BTCF Depreciation Pre-tax Tax ATCF NPV-ATCFExplanation / Answer
Answer:
First of all we need to find out the depriciation each year as under
Straight line depriciation
=cost-salvage value/ year
=50,000-0/6
=8333 deoriciation each year
Year
BTCF
Depricaition
Pre tax
Tax
at 35%
ATCF
PV facotor
at 10%
NPV-ATCF
A
B
C=A-B
D=C*35%
E=C-D+B
F
G=E*F
1
20,000
8333.33
11,667
4083.33
15,917
0.9090909
14469.70
2
20,000
8333.33
11,667
4083.33
15,917
0.8264463
13154.27
3
20,000
8333.33
11,667
4083.33
15,917
0.7513148
11958.43
4
20,000
8333.33
11,667
4083.33
15,917
0.6830135
10871.30
5
20,000
8333.33
11,667
4083.33
15,917
0.6209213
9883.00
6
20,000
8333.33
11,667
4083.33
15,917
0.5644739
8984.54
Total
69321.23
Less:
Initial Investment
-50,000
NPV
119,321
Year
BTCF
Depricaition
Pre tax
Tax
at 35%
ATCF
PV facotor
at 10%
NPV-ATCF
A
B
C=A-B
D=C*35%
E=C-D+B
F
G=E*F
1
20,000
8333.33
11,667
4083.33
15,917
0.9090909
14469.70
2
20,000
8333.33
11,667
4083.33
15,917
0.8264463
13154.27
3
20,000
8333.33
11,667
4083.33
15,917
0.7513148
11958.43
4
20,000
8333.33
11,667
4083.33
15,917
0.6830135
10871.30
5
20,000
8333.33
11,667
4083.33
15,917
0.6209213
9883.00
6
20,000
8333.33
11,667
4083.33
15,917
0.5644739
8984.54
Total
69321.23
Less:
Initial Investment
-50,000
NPV
119,321
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