Aerodrome Corporation spends 5 million dollars for a sophisticated lathe to crea

Question

Aerodrome Corporation spends 5 million dollars for a sophisticated lathe to create aero- dynamically efficient missile nose cones. The system will be used for 10 years after which it will have 400,000 dollars of salvage value. The maintenance of the system will start at 20,000 per year and increase at a rate of 30,000 per year until the end of the 10 year period. The economic environment has a tax rate of 40% and an after tax MARR of 12%. Show for the ten years (a) The Before Tax Cash Flow (b) The depreciation allowance (c) Taxable Income (d) Tax (e) After Tax Cash Flow Also show the Present Worth of System.

Explanation / Answer

Year Cashflow Maintenance Cashflow Cashflow Before Tax Tax Saving After Tax Cashflow PV factor @12% PV 0 -5000000 -5000000 -5000000 1 -5000000 1 20000 20000 8000 28000 0.892857143 25000 2 50000 50000 20000 70000 0.797193878 55803.57143 3 80000 80000 32000 112000 0.711780248 79719.38776 4 110000 110000 44000 154000 0.635518078 97869.78407 5 140000 140000 56000 196000 0.567426856 111215.6637 6 170000 170000 68000 238000 0.506631121 120578.2068 7 200000 200000 80000 280000 0.452349215 126657.7803 8 230000 230000 92000 322000 0.403883228 130050.3994 9 260000 260000 104000 364000 0.360610025 131262.0491 10 400000 290000 690000 276000 966000 0.321973237 311026.1465 NPV           -38,10,817 Year Maintenance Cashflow Depreciation Net Expense Tax Saving 0 1 20000 460000 480000 192000 2 50000 460000 510000 204000 3 80000 460000 540000 216000 4 110000 460000 570000 228000 5 140000 460000 600000 240000 6 170000 460000 630000 252000 7 200000 460000 660000 264000 8 230000 460000 690000 276000 9 260000 460000 720000 288000 10 290000 460000 750000 300000

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