12 4Megan, CFO for Ryan\'s Equipment recently purchased a tractor. The new tract
ID: 2658493 • Letter: 1
Question
12 4Megan, CFO for Ryan's Equipment recently purchased a tractor. The new tractor costs $75,000, and expected to generate net after-tax operating cash flows, including depreciation, of $25,000 per year the 4 years that the firm is thinking about keeping it. The expected year-end abandonment values (ale plus tax effect) for the tractor are given below. The company's cost of capital is 10 percent. What is th optimal economic life? (75,000) 25,000 25,000 25.000 25,000 60,000 40,000 25,000 5,000 a. The EAA method confirms that the economic life is 1 year. b. The EAA method confirms that the economic life is 2 years. c. The EAA method confirms that the economic life is 3 years d. The EAA method confirms that the economic life is 4 years. e. None of the above. 1250o D Kunzman Corporation has sales revenue of $45,000,000. The company's fixed costs total $15,000,000, its variable costs are 8 percent of sales revenue, its interest expense is $3,000,000. If the company wants to increase its sales by 1 7%, how much will that increase Net Income? a. 19.04 percent b. 30.08 percent c. 19.41 percent d. 31.47 percent e. 26.09 percentExplanation / Answer
Answer (1)
Here the optimal economic life is 1 year as per EAA method
Answer 2
If sold after 1 year Year Initial Cost Annual Income Residual Value Total Cost PVF @10% PV 0 -75000 0 0 -75000 1 -75000 1 0 25000 60000 85000 0.909090909 77272.72727 Total PV 2272.727273 EAA = (r*NPV) / 1 - (1+r)-n 2499.975 If sold in 2 year Year Initial Cost Annual Income Residual Value Total Cost PVF @10% PV 0 -75000 0 0 -75000 1 -75000 1 0 25000 0 25000 0.909090909 22727.27273 2 0 25000 40000 65000 0.826446281 53719.00826 Total PV 1446.280992 EAA = (r*NPV) / 1 - (1+r)-n 831.1959723 If sold in 3 year Year Initial Cost Annual Income Residual Value Total Cost PVF @10% PV 0 -75000 0 0 -75000 1 -75000 1 0 25000 0 25000 0.909090909 22727.27273 2 0 25000 0 25000 0.826446281 20661.15702 3 0 25000 25000 50000 0.751314801 37565.74005 Total PV 5954.169797 EAA = (r*NPV) / 1 - (1+r)-n 2391.23285 If sold in 4 year Year Initial Cost Annual Income Residual Value Total Cost PVF @10% PV 0 -75000 0 0 -75000 1 -75000 1 0 25000 0 25000 0.909090909 22727.27273 2 0 25000 0 25000 0.826446281 20661.15702 3 0 25000 0 25000 0.751314801 18782.87002 4 0 25000 5000 30000 0.683013455 20490.40366 Total PV 7661.703436 EAA = (r*NPV) / 1 - (1+r)-n 2416.941147Related Questions
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