Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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You are evaluating a four-year project that requires an initial investment of $697,400 In equipment. The equipment falls in the
five-year MACRS class with annual percentages of .2, .32, 192, 1152, 1152, and .0576 for Years 1 to 6, respectively. You estimate
that at the end of the project you will be able to sell the equipment for $135,000. Your tax rate is 23 percent and your required
return on the project is 13.2 percent. Assuming no bonus
of the equipment? (Hint: You will first need to calculate the book value at the end of the project and then compare that value to
the salvage value to identify tax implication. Use the aftertax salvage value equation for assistance.)
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- Acompany is evaluating the addition of equipment to its presentoperations. They need to purchase equipment for $160,000. The five year MACRS GDS Recovery Method is appropriate forthe investment and the total tax rate (federal plus state) is 40%. Gross revenue is expected to be $30,000/year while maintenance costs are expected to be $5,000/year. It is expected that the operation will be shut down at the end of the fourth year with a salvage value of $20,000.1-Prepare a table showing your development of the ATCF's.arrow_forwardA project with an initial outlay of $400 has an economic life of 5 years. The project after-tax cash flows are $150 in Years 1 & 2, then after-tax cash flows of $100 in Years 3 through 5. Calculate the internal rate of return, net present value and profitability index using an interest rate of 12%.arrow_forwardYou plan to buy some undeveloped land that should sell for $180,000 in three years. What is the most you can pay to ensure a 12% annual return?arrow_forward
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