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Tessa Corporation has the following information about the purchase of a new piece of equipment: Cash revenues less cash expenses $ 2 0 5 ,
Tessa Corporation has the following information about the purchase of a new piece of equipment:
Cash revenues less cash expenses $ per year
Cost of equipment $
Salvage value at the end of the th year $
Increase in working capital requirements $
Tax rate percent
Life years
Cost of capital is percent.
Required use Excel:
a Calculate the following assuming straightline depreciation:
i Calculate the aftertax net income for each of the nine years.
ii Calculate the aftertax cash flows for each of the nine years.
iii. Calculate the aftertax payback period.
iv Calculate the accrual accounting rate of return on original investment for each of the nine years.
v Calculate the net present value NPV
vi Calculate the internal rate of return IRR
b Calculate the following assuming that the company is using the sevenyear MACRS halfyear convention without a salvage value:
i Calculate the aftertax cash flows for each of the nine years.
ii Calculate the aftertax payback period.
iii. Calculate the net present value NPV
iv Calculate the internal rate of return IRR
NOTE: Part b will differ because you will use the MACRS tables to calculate your yearly depreciation. If you have a twelveyear life in part a and a tenyear life using MACRS in part b you will still need to do cash flows for years, even though you will only have depreciations in eleven years. Your depreciation expense for the th year would be Because of the midyear convention it assumes you buy on July you would have depreciation in six years fiveyear MACRS eight years sevenyear MACRS and eleven years tenyear MACRS When solving part b we will also assume no salvage value. You can find each years depreciation expense by multiplying your MACRS percentages times the original cost.
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