As the owner of the Speedy Paving, you are planning the purchase of new equipment to meet the increased road construction. The equipment would cost $600,000 and have an expected salvage value of $700,000 after 3 years. The new equipment is projected to generate annual revenues of $800,000 and have annual operating expenses of $700,000. • Depreciate the equipment using the DB method (d=10%). The before-tax interest rate is 10%. The after-tax interest rate is 5% A 50% tax rate applies to net income from operations and to the recapturing of depreciation. Thế half-year rule applies You'must obtain a $300,000 loan (at a 10% rate of interest) which is repaid as follows: Repayment of loan EOY1 Percentage of loan repaid 20 ΕΟΥ2 30 ΕΟΥ3 50 End of Year Cash Flows 1 Item 1. Before-Tax Cash Flow AA 2. Annual Depreciation 3. Interest Expense BB CC 4. Taxable Income 5. Taxes Payable DD 6. After-Tax Cash Flow EE 7. Interest Expense 8. Loan Repayment FF 9. Cash Flow on Owner GG Equity The dollar value of cell FF is 150,000 90,000 60,000

As the owner of the Speedy Paving, you are planning the purchase of new equipment to meet the increased road construction. The equipment would cost $600,000 and have an expected salvage value of $700,000 after 3 years. The new equipment is projected to generate annual revenues of $800,000 and have annual operating expenses of $700,000. • Depreciate the equipment using the DB method (d=10%). The before-tax interest rate is 10%. The after-tax interest rate is 5% A 50% tax rate applies to net income from operations and to the recapturing of depreciation. Thế half-year rule applies You'must obtain a $300,000 loan (at a 10% rate of interest) which is repaid as follows: Repayment of loan EOY1 Percentage of loan repaid 20 ΕΟΥ2 30 ΕΟΥ3 50 End of Year Cash Flows 1 Item 1. Before-Tax Cash Flow AA 2. Annual Depreciation 3. Interest Expense BB CC 4. Taxable Income 5. Taxes Payable DD 6. After-Tax Cash Flow EE 7. Interest Expense 8. Loan Repayment FF 9. Cash Flow on Owner GG Equity The dollar value of cell FF is 150,000 90,000 60,000

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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