Laura wants to buy a delivery truck. The truck costs $53,000 , and will allow her to increase her after tax profits by $39,000 per year for the next 10 years. She will borrow 72% of the cost of the truck for 10 years, at an interest rate of 7%. Laura's unlevered cost of capital is 19% and her tax rate is 39%. The loan includes a $1,000 application fee. What is the NPV of buying the truck on these terms? Please use the APV method.

Laura wants to buy a delivery truck. The truck costs $53,000 , and will allow her to increase her after tax profits by $39,000 per year for the next 10 years. She will borrow 72% of the cost of the truck for 10 years, at an interest rate of 7%. Laura's unlevered cost of capital is 19% and her tax rate is 39%. The loan includes a $1,000 application fee. What is the NPV of buying the truck on these terms? Please use the APV method.

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)

7th Edition

ISBN:9780357033609

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter13: Investing In Mutual Funds, Etfs, And Real Estate

Section: Chapter Questions

Problem 9FPE

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Laura wants to buy a delivery truck. The truck costs $53,000, and will allow her to increase her after tax profits by $39,000 per year for the next 10 years. She will borrow 72% of the cost of the truck for 10 years, at an interest rate of 7%. Laura's unlevered cost of capital is 19% and her tax rate is 39%. The loan includes a $1,000 application fee. What is the NPV of buying the truck on these terms?
Laura wants to buy a delivery truck. The truck costs $76,000 , and will allow her to increase her after tax profits by $14,000 per year for the next 10 years. She will borrow 82% of the cost of the truck for 10 years, at an interest rate of 6%. Laura’s unlevered cost of capital is 17% and her tax rate is 21%. The loan includes a $2,000 application fee. What is the NPV of buying the truck on these terms? Please use the APV method.
You will need a calculator for this problem. Sanchez earns $4,000, and she wants to save it for retirement, which is 10 years away. She can either save it in a taxable account or put it into a Roth IRA. Suppose that Sanchez can receive an annual rate of return of 8 percent and her marginal tax rate is 25 percent. By the time she reaches retirement, how much money would she have in either option? [Note: Sanchez has to pay tax on the $4,000, so she cannot put the full amount either into the taxable account or the Roth IRA.]
Rula has purchased a new car for $20,000. She paid $3,000 as a down payment, and she paid the remaining balance by a loan from her hometown bank. Rula will pay off the loan by equal annual installments of $10058. How many years will it take Rula to pay off the loan, given an opportunity cost of 12%? Answer:
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Loni buys a machine for her business. The machine costs $280,000. Loni estimates that the machine can produce a $64,000 cash inflow per year for the next 9 years. Loni's cost of capital is 7 percent. What is the approximate present value of the cash flow benefits for Loni?
Joe's Taco Hut can purchase a delivery truck for $20,000, for which he will take out a loan from the bank. He estimates it will generate a net income (after taxes, maintenance, and operating costs) of $4,000 per year. His other option is to go to work for someone else earning net income of $3,000 per year. Assume that Joe can resell the truck for the entire purchase price of $20,000. What is the VMP for the delivery truck (Joe's MB if he buys it)? Please enter your answer as a numerical response and do not type out your answer as words (ie. $3000 not "Three thousand dollars"). Will Joe buy the delivery truck if the interest rate is 3%? Simply type either "Yes" or "No" into the answer box Will Joe buy the delivery truck if the interest rate is 7%? Simply type either "Yes" or "No" into the answer box What is the highest interest rate Joe would be willing to pay? Please enter your answer as a numerical response and do not type your answer as words (ie. 3% not Three percent").
Jordan earns an annual salary of $72,000. He is considering buying a house. His lender uses 30% of monthly gross income as a guideline for the maximum PITI (principal repayment, interest, taxes, and insurance). Assume that monthly property taxes and insurance amount to be $600. He can get a 25-year mortgage with annual interest rate of 6%. If he would like to finance 75% of the house, what is the home purchase price that he can afford?
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Alex has been offered an engineering job with a large company that has offices in Makati and Laguna. The salary is P720,000 per year at either location. Makati's tax burden is 20% and Laguna's is 15%. If Alex accepts the position in Laguna and stay with the company for 5 years, what is the FW (future worth) of the tax savings? Your personal MARR is 10% per year. (Hint: Use 5% = 20% - 15%) (A) P219,783.60 (B) P4,395,672.00 C) P2,729,366.47 D) P136,468.32
Duke was approved for a 30 year conventional loan for $250,000 at 3.65% fixed rate. He was also approved for a 15 year conventional loan for $250,000 at 3.45% fixed rate. He has $20,000 to put as a down payment. He has to pay insurance of $1400 a year and property tax of $2500 a year. Use time value of money to figure out the best options for Duke. If he looks at a house that is $150,000 how much would he pay per month with a 15 year loan?
Tammy Faye requires a 12% before-tax return on her real estate investments. If she invests $78,000 cash to buy a rental townhouse that has $120 per month in taxes, insurance, and maintenance, and if she can sell the property in 5 years for $88,000, how much monthly rent must she charge to reach her target rate of return? Type your numeric answer and submit