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As the owner of the Speedy Paving, you are planning the purchase of new equipment to meet the increased road construction. The equipment would cost
As the owner of the Speedy Paving, you are planning the purchase of new equipment to meet the increased road construction. The equipment would cost $600,000 and have an expected salvage value of $700,000 after 3 years. The new equipment is projected to generate annual revenues of $800,000 and have annual operating expenses of $700,000. Depreciate the equipment using the DB method (d=10%). The before-tax interest rate is 10%. The after-tax interest rate is 5% A 50% tax rate applies to net income from operations and to the recapturing of depreciation The half-year rule applies You must obtain a $300,000 loan (at a 10% rate of interest) which is repaid as follows: Repayment of loan EOY1 EOY2 EOY3 Percentage of loan repaid 20 30 50 End of Year Cash Flows ol 3 AA BB CC Item 1. Before-Tax Cash Flow 2. Annual Depreciation 3. Interest Expense 4. Taxable income 5. Taxes Payable 6. After-Tax Cash Flow 7. Interest Expense 8. Loan Repayment 9. Cash Flow on Owner Equity DD EE FF GG The dollar value of cell GG IS 0-600,000 150,000 0-300,000 160,000
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