Tha ABC.company is considening purchasing a machine that costs $280,000 and expe

Question

Tha ABC.company is considening purchasing a machine that costs $280,000 and expected to yold $200,000 per year betore taxes The company has to borrow $80,000 which havo to be repaid in two years at, 10% The cost of operating ard maintaining the machine s $40,000 per year The machine wil be needed for tw years and can be sold at the and of the second year for $120,000 For depreciation purposes the straight-line depreciation method with no halif-year convention applies Find the missing values in the following tables in order to determine d this was a good mostrert at MAAR of 14% Tho company's income tax is 40% Your docson should be based on the PW criteon NOTE Datermining the minsing valuen (10 valua n the folloina table wosild make.yosu capable of aelking the.probiem (10 points) NCOME STATEMENT End of Year evenue pense Taxable Income Net Income End of Year Operating Activities 0324 SH FLOW STATEMENT 43200 boooo 1000 Not Income Investment Activities

Explanation / Answer

Income Statement End of year 0 1 2 Revenue: 200000 200000 Expenses    Operating Costs 40000 40000    Depreciation 80000 80000    Debt Interest 8000 4191 Taxable Income 72000 75809 Tax (40%) 0 28800 30324 Net Income 0 43200 45485 Cash Flow Statement End of year 0 1 2 Operating Activities    Net Income 43200 45485    Depreciation 80000 80000 Investing Activities    Machine -280000    Salvage Value 120000    Gains Tax -48000 Financing Activities    Borrowed Money 80000    Principal Repayment -38095 -41905 Net Cash Flow -200000 85105 155580 PVIF (14%) 1 0.877192982 0.769467528 PV of Net Cash Flow -200000 74653.50877 119714.0659 Present Worth -5632.425362 Decision Since NPV is negative, it is not advisable to purchase the machine

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.