Answered step by step
Verified Expert Solution
Question
1 Approved Answer
A Company is considering to invest $480,000 in equipment. Data related to the investment are as follows: Year Income Before Depreciation and Taxes 1 $130,000
A Company is considering to invest $480,000 in equipment. Data related to the investment are as follows:
Year | Income Before Depreciation and Taxes |
1 | $130,000 |
2 | $130,000 |
3 | $130,000 |
4 | $130,000 |
5 | $130,000 |
6 | $130,000 |
Cost of capital is 14 percent.
Bright uses the straight-line method of depreciation for tax purposes. In addition, its tax rate is 35% and the depreciable life of the equipment is 6 years. The equipment has an estimated salvage value of $60,000 at the end of the 6 year. Assume a full year of depreciation is taken in each of the 6 years.
Questions:
- Calculate the after-tax cashflows for the first year.
- Calculate the accounting rate of return on average investment for year 1.
- Calculate the payback period.
- Calculate the net present value (NPV)
- Calculate the internal rate of return (IRR)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started