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.						[0.6]
B. The book value at the end of the second year.						[1.1]
C. The taxable income for each year. Be careful, the second year is different.						[1.1]
D. The tax for each year.						[0.6]
E. The after tax cash flowAgain, the second year is different.						[1.0]
F. Assume MARR is 12%, calculate the Net Present Worth of this after-tax cash flow.						[1.6]
All Parts are Required						[6.0]