An investor bought a racehorse for $14 M. The horses average winnings were $5,300,000 per year and expenses averaged $500,000 per year.

The horse was retired after 2 years, at which time it was sold to a breeder for $9,500,000. Assuming 3 year MACRS life for a racehorse and

an income tax rate of 39%, determine the investors after-tax rate of return on this investment.

A. The before-tax cash flow for the first two years

B. The book value at the end of the second year.

C. The taxable income for each year. Be careful, the second year is different.

D. The tax for each year.

E. The after tax cash flowAgain, the second year is different.

F. Assume MARR is 12%, calculate the Net Present Worth of this after-tax cash flow.

To do these tasks, complete this table.
End of yr	Before tax cash flow BTCF		Depreciation MACRS %	Depreciation $		Taxable income	Tax	After tax cash flow ATCF		Present Worth
0
1
2