Question
A car costs $40,000. The car will be financed through a bank loan of $14,000 repayable in two equal annual payments at 8% compounded annually.
A car costs $40,000. The car will be financed through a bank loan of $14,000 repayable in two equal annual payments at 8% compounded annually. The car is expected to provide annual savings of $36,000 for two years and is to be depreciated by a 3-year MACRS method. This car will require annual maintenance of $7000 per year. The salvage value at the end of two years is expected to be $17,000. Assuming a marginal tax rate of 25% and a MARR of 17% find the following:
(a)Draw and label the complete before tax cash flow (BTCF)
(b)Find the yearly depreciation, any annual interest payments, the taxable income for each year, and then calculate the yearly taxes
(c)Identify any gain or loss from the salvage of the asset at the end of the 2nd year; calculate any additional taxes or credits for the 2nd year.
(d)Draw and label the ATCF diagram
(e)Draw the net cash flow, find the PW(17%), and state your decision to invest or not.
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