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Question Completion Status: Quwwwww points SAN The following is information retrieved from the Salvia Company data: -The income tax rate is 40% of operating income

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Question Completion Status: Quwwwww points SAN The following is information retrieved from the Salvia Company data: -The income tax rate is 40% of operating income each year. -The before-tax additional operating cash inflows from Hybrid bus are $240,000 in year 1- 4 and 5210,000 in year 5. For tax purposes. Salvia uses the straight line depreciation method and assumes there is no terminal disposal value of the bus. that the expected additional operating cash inflows are $ 240,000 in year 1 through 4 and $210,000 in year 5. -Gain or losses on the sale of depreciable assets are taxed at the same rate as ordinary income -The tax effects of cash inflows and outflows occur at the same time that the cash inflows and outflows occur. -Salvia uses an 8% required rate of return for discounting after-tax cash flows. -The date for the buses as follow New Hybrid Bus Purchase price 5660.000 Current book value $60,000 Current disposal value 28,500 Not applicable Terminal disposal value five years from now 0 Annual depreciation 6000 36.000 Working capital Old Bus 0 2 ? a) Calculate the following 1 Not present value 2 Internal rate of return 3 Payback 7/23/ WOW -The date for the buses as follow Old Bus New Hybrid Bus $660 000 Purchase price Current book value Current disposal value Terminal disposal value five years from now Annual depreciation Working capital $60,000 28,500 0 2 6,000 Not applicable 0 ? 36 000 a) Calculate the following 1. Net present value 2. Internal rate of return 3.Payback 4 Accrual accounting rate of return on net initial investment b) Assume that Salvia is subject to income tax at 40% rate and the company uses the NPV method. Should the management of the company accept the investment in new hybrid bus? Show your calculation! 3112pt TT T Arial T.EE

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