Question
. An asset is used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has an acquisition cost of
. An asset is used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has an acquisition cost of $8,600,000 and will be sold for $1,890,000 at the end of the project. If the tax rate is 35 percent, what is the after-tax salvage value of the asset?
5. Consider the following cash flows on two mutually exclusive projects.
Year | Project A | Project B |
0 | -54,000 | -64,000 |
1 | 26,000 | 29,000 |
2 | 32,000 | 38,000 |
3 | 19,000 | 23,000 |
The cash flows of Project A are expressed in real terms which those of Project B are expressed in nominal terms. The appropriate nominal discount rate is 11 percent and the inflation rate is 4 percent. Which project should you choose?
Please show step by step calculations so I can see how you obtained the answer.
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