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Problem 2 A $400,000 investment in a Surface Mount Machine produces before-tax net revenue of $100,000/yr. for 10 years, at which time the SMP
Problem 2 A $400,000 investment in a Surface Mount Machine produces before-tax net revenue of $100,000/yr. for 10 years, at which time the SMP machine will have a salvage value of $15,000. We assume $250,000 is borrowed at 9.9 % annual compound interest and repaid in 10 years. We will use a 10-year planning horizon, a 21% tax rate, a 7.9% BTMARR, and DB depreciation method. Determine ATMARR, and then the preferred payment plan based on ATPW and determine the ATFW, ATAW, ATIRR, and ATERR for each of the following four plans: a. Plan 1: Pay interest each period, but make no principal payment until the end of the loan period b. Plan 2: Make equal end-of period principal payments and pay interest each period on the unpaid balance at the beginning of the period c. Plan 3: Make equal end-of period payments over the loan period d. Plan 4: Make no payment until the end of the loan period
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