Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Excel work preferred, thank you A firm is considering purchasing a computer system. -Cost of system is $157,000. The firm will pay for the computer
Excel work preferred, thank you
"A firm is considering purchasing a computer system. -Cost of system is $157,000. The firm will pay for the computer system in year 0. - Project life: 4 years -Salvage value in year (constant) dollars: $23,000 -Depreciation method: five-years MACRS -Tax rate = 21% (remains constant over time) -Annual revenue = $133,000 (year-o constant dollars) -Annual expenses (not including depreciation) = $83,000 (year-O constant dollars) -The general inflation rate is 2.9% during the project period (which will affect all revenues, expenses, and the salvage value but not depreciation). -The firm borrows the entire $157,000 at 11.5% interest to be repaid in 2 annual payments. The debt interest paid and the principal payment SHOULD NOT be changed by the inflation rate. Lending agencies set the interest rate of borrowing to account for the inflation rate. Calculate the effects of borrowing and include the debt interest paid and the principal repayment into the income statement and cash flow statement. Determine the INFLATION-FREE IRR' of the computer system. Enter your answer as a percentage between 0 and 100 rounded to the nearest tenth of a percent." 11.34 19.8 (with margin: 0.2) "A firm is considering purchasing a computer system. -Cost of system is $157,000. The firm will pay for the computer system in year 0. - Project life: 4 years -Salvage value in year (constant) dollars: $23,000 -Depreciation method: five-years MACRS -Tax rate = 21% (remains constant over time) -Annual revenue = $133,000 (year-o constant dollars) -Annual expenses (not including depreciation) = $83,000 (year-O constant dollars) -The general inflation rate is 2.9% during the project period (which will affect all revenues, expenses, and the salvage value but not depreciation). -The firm borrows the entire $157,000 at 11.5% interest to be repaid in 2 annual payments. The debt interest paid and the principal payment SHOULD NOT be changed by the inflation rate. Lending agencies set the interest rate of borrowing to account for the inflation rate. Calculate the effects of borrowing and include the debt interest paid and the principal repayment into the income statement and cash flow statement. Determine the INFLATION-FREE IRR' of the computer system. Enter your answer as a percentage between 0 and 100 rounded to the nearest tenth of a percent." 11.34 19.8 (with margin: 0.2)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