Answered step by step
Verified Expert Solution
Question
1 Approved Answer
The Land Development Corporation is considering purchasing a bulldozer. The bulldozer will cost $100,000 and will have an estimated salvage value of $30,000 at the
The Land Development Corporation is considering purchasing a bulldozer. The bulldozer will cost $100,000 and will have an estimated salvage value of $30,000 at the end of six years. The asset will generate annual before-tax revenues of $80,000 over the next six years. The asset is classified as a five-year MACRS property. The marginal tax rate is 40%, and the firm's market interest rate is known to be 18%. All dollar figures represent constant dollars at time 0 and are responsive to the general inflation rate f. (a) with f 6%, compute the after-tax cash flows in actual dollars. (b) Determine the real rate of return of this project on an after-tax basis. (c Suppose that the initial cost ofthe project will be financed through a local bank at an interest rte of 12% with an annual payment of $24,323 over six years. With this additional condition, answer part (a) again. (d) In part (a), determine the present-value loss due to inflation. (e) In part (a), determine how much the project has to generate in additional before-tax annual revenue in actual dollars (equal amount) to make up the loss due to inflation
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