6) (50 points) A company is considering an investment in a new testing equipment

Question

6) (50 points) A company is considering an investment in a new testing equipment to boost its revenue from contract jobs. For this new investment, the following data apply: Purchase price-$200,000 {50% from company funds and 50% from a loan) Useful Life: 4 years Estimated salvage: $25,000 Estimated annual O&M; costs: $10,000 Estimated annual increase in revenues: $60,000 Depreciation: MACRS-GDS 3-year property Effective tax rate: 40% Conditions onloan: Nominal annual rate of 5% per year compounded annually. The loan is to be repaid over 3 years with equal annual payments. a) (15 points) Loan calculations - principal and interest payments. (Round off values to the nearest dollar) b) (35 points) Find the ATCF for each year of this investment (Round off values to the nearest dollar). IAKs1 lutk 200t MACI4%{?1% .liot'l; hnauw: l?? A CE PrincinalPaymct Deduction

Explanation / Answer

Answer (a)

Answer(B)

Purchase price 200000 Loan (50%) 100000 Own Funds (50%) 100000 Compound interest rate 5% Year Opening Bal Installment Interest Principal Cl. Balance 1 100000 36721.504 5000 31721.5 68278.5 2 68278.4959 36721.504 3413.925 33307.58 34970.92 3 34970.9166 36721.504 1748.546 34972.96 0 FV of loan @5% , 3 years 100000(1+0.05)^3 100000*1.15762 115762 PVAf (5%,3) = 2.723248 Annual equal installment 100000/2.7232 = 36721.504

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