A potential investment has a cost of $542,500 and a useful life of 7 years. Annual cash sales from the investment are expected to be $225,225 and annual cash operating expenses are expected to be $88,725. The expected salvage value at the end of the investment's life is $70,000. The company uses straight-line depreciation for all assets based on the full cost of the assets.   The company has a before-tax discount rate of 17%, an after-tax discount rate of 14%, and a tax rate of 40%. 1. Assume the company wants to consider this investment before-tax. (Round dollar amounts to the nearest whole dollar and IRR to one decimal place (i.e. .055 = 5.5%). Enter negative amounts with a minus sign.)   2. Assume the company wants to consider this investment after-tax. (Round dollar amounts to the nearest whole dollar and IRR to one decimal place (i.e. .055 = 5.5%). Enter negative amounts with a minus sign.)

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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A potential investment has a cost of $542,500 and a useful life of 7 years. Annual cash sales from the investment are expected to be $225,225 and annual cash operating expenses are expected to be $88,725. The expected salvage value at the end of the investment's life is $70,000. The company uses straight-line depreciation for all assets based on the full cost of the assets.

 

The company has a before-tax discount rate of 17%, an after-tax discount rate of 14%, and a tax rate of 40%.

1. Assume the company wants to consider this investment before-tax. (Round dollar amounts to the nearest whole dollar and IRR to one decimal place (i.e. .055 = 5.5%). Enter negative amounts with a minus sign.)

 

2. Assume the company wants to consider this investment after-tax. (Round dollar amounts to the nearest whole dollar and IRR to one decimal place (i.e. .055 = 5.5%). Enter negative amounts with a minus sign.)

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