An investment of $450,000 is made in equipment that qualifies as 5-year equipment for MACRS-GDS depreciation. The then-current dollar before tax cash flows are given by a $50,000 increasing gradient series, with the cash flow the first year equaling $100,000. In addition, a $50,000 hencurrent salvage value occurs at the end of the 5-year planning horizon. A 25% tax rate and 4% inflation rate apply. The real ATMARR is 8%. Solve, a. Determine the after-tax cash flows, in constant dollars, for each year. b. Determine the present worth for the investment. c. Determine the real internal rate of return for the investment.
An investment of $450,000 is made in equipment that qualifies as 5-year equipment for MACRS-GDS depreciation. The then-current dollar before tax cash flows are given by a $50,000 increasing gradient series, with the cash flow the first year equaling $100,000. In addition, a $50,000 hencurrent salvage value occurs at the end of the 5-year planning horizon. A 25% tax rate and 4% inflation rate apply. The real ATMARR is 8%. Solve, a. Determine the after-tax cash flows, in constant dollars, for each year. b. Determine the present worth for the investment. c. Determine the real internal rate of return for the investment.
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 17E: Postman Company is considering two independent projects. One project involves a new product line,...
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