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

WHat ia 2 plus 2

two questions

Problem 9-25 Fudge factors An oil company executive is considering investing $10.1 million in one or both of two wells: well 1 is expected to produce oil worth $3.01 million a year for 10 years; well 2 is expected to produce $2.01 million for 15 years. These are real (inflation-adjusted) cash flows. The beta for producing wells is 0.91. The market risk premium is 9%, the nominal risk-free interest rate is 7%, and expected inflation is 3%. The two wells are intended to develop a previously discovered oil field. Unfortunately there is still a 21% chance of a dry hole in each case. A dry hole means zero cash flows and a complete loss of the $10.1 million investment. Ignore taxes and make further assumptions as necessary. a. What is the correct real discount rate for cash flows from developed wells? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Real discount rate b. The oil company executive proposes to add 20 percentage points to the…