odwe o caying a buildlng and som other equiement to Increase our production rate

Question

odwe o caying a buildlng and som other equiement to Increase our production rates Project life: 5 years Expected income & expenses in Table 1 Equipment loan: paid in 5 equal annual payments Loan interest rate is 6% compounded monthly Loan repayment starts in Year 1 The building and equipment depreciate as 5-year property using straight line depreciation The income tax rate is 23% no inflation MARR is 12% a) Calculate the present worth of the project on an after tax basis.Show all your work. b) What is the total amount of interest paid on the loan? Name Table 1 (for Problem 1) Operating Building Equipment Ye nceomes cot.o stooca $60,000 $100,000 $70,000$15,000 70,000 $15,000 $70,000 $15,000 4$70,000 $15,000 $70,000$15,000

Explanation / Answer

Year Initial Investment Annual operating Income Depreciation EBIT Less: interest EBT Less: Tax @23 Net Income Add: dep. Net Cash Flow PV @ 12% Present Value 0 $40,000.00 $40,000.00 1.0000 $40,000.00 1 -$20,000.00 $55,000.00 $32,000.00 $23,000.00 $6,167.78 $16,832.22 $3,871.41 $12,960.81 $6,167.78 -$871.41 0.8929 -$778.04 2 -$20,000.00 $55,000.00 $32,000.00 $23,000.00 $4,934.22 $18,065.78 $4,155.13 $13,910.65 $4,934.22 -$1,155.13 0.7972 -$920.86 3 -$20,000.00 $55,000.00 $32,000.00 $23,000.00 $3,700.67 $19,299.33 $4,438.85 $14,860.49 $3,700.67 -$1,438.85 0.7118 -$1,024.14 4 -$20,000.00 $55,000.00 $32,000.00 $23,000.00 $2,467.11 $20,532.89 $4,722.56 $15,810.32 $2,467.11 -$1,722.56 0.6355 -$1,094.72 5 -$20,000.00 $55,000.00 $32,000.00 $23,000.00 $1,233.56 $21,766.44 $5,006.28 $16,760.16 $1,233.56 -$2,006.28 0.5674 -$1,138.42 NPV $35,043.81 Initial Investment = -60000+100000 40000 Effective Rate = effective(6%,12) 6.17% Amortization Table Year Payment Interest @ 6.17% x Ending Bal. Principal Ending Bal. 0 $100,000.00 1 $26,167.78 $6,167.78 20000 $80,000.00 2 $24,934.22 $4,934.22 20000 $60,000.00 3 $23,700.67 $3,700.67 20000 $40,000.00 4 $22,467.11 $2,467.11 20000 $20,000.00 5 $21,233.56 $1,233.56 20000 $0.00 b) Total interest paid $18,503.34

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