47. An investment of $250,000 is made in equipment that qualifi es as MACRSGDS 7-year property. The before-tax cash fl ow profi le for the investment is given below, including a $100,000 salvage value at the end of the 5-year planning horizon. A loan is taken for 80 percent of the investment capital at an annual compound interest rate of 18 percent and the loan is repaid over a 5-year period. A 40 percent tax rate and an MARRAT of 7 percent apply.

EOY BTCF 0 –$250,000 1 40,000 2 40,000 3 40,000 4 40,000 5 140,000 Determine the PW of the ATCFs using:

a. Loan payment Plan 1

b. Loan payment Plan 2

c. Select which of the two loan payment plans is preferred, and explain why it is preferred in terms of the relationship between the loan rate and the MARRAT.