Question
Consider an investment that has a project life of 10 years and requires an investment of $1,000,000 at time zero for machinery and equipment to
Consider an investment that has a project life of 10 years and requires an investment of $1,000,000 at time zero for machinery and equipment to be depreciated over 8 years with half year convention straight line depreciation method (starting in year 1 and continuing to year 9). Annual revenue is estimated to be $500,000 and annual operating costs of $75,000. $200,000 is needed for working capital at time zero and is expected to freed-up (returned) at the end of the project (year 10). The salvage value of the machinery and equipment will be zero while an environmental remediation cost of $75,000 will be required to be paid at the end of year 10 as an additional operating cost. The minimum After Tax Cash Flow ROR is 12% and the effective income tax rate is 25%. Calculate the depreciation using Declining Balance Depreciation method and declining balance rate of 180%, with the asset to be depreciated over 6 years. Show your work in detail for depreciation calculations please. Calculate After Tax Cash Flow, NPV, and ROR of the project .
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