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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 $205,000 per year
Cost of equipment $700,000
Salvage value at the end of the 10th year $70,000
Increase in working capital requirements $140,000
Tax rate 25 percent
Life 9 years
Cost of capital is 16 percent.
Required (use Excel):
a. Calculate the following assuming straight-line depreciation:
i. Calculate the after-tax net income for each of the nine years.
ii. Calculate the after-tax cash flows for each of the nine years.
iii. Calculate the after-tax 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 seven-year MACRS half-year convention without a salvage value:
i Calculate the after-tax cash flows for each of the nine years.
ii. Calculate the after-tax 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 twelve-year life in part a and a ten-year life using MACRS in part b, you will still need to do cash flows for 12 years, even though you will only have depreciations in eleven years. Your depreciation expense for the 12th year would be 0. Because of the mid-year convention (it assumes you buy on July 1), you would have depreciation in six years (five-year MACRS), eight years (seven-year MACRS), and eleven years (ten-year 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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