1. (12 points) You start your new job at a company that does not make sound financial decisions. You decide to set them straight. To do this you need to calculate the average annual inflation rate from 2011 to 2021. Let's say that you go to BLS.gov and find that the CPI index was 224 in 2011 and was 264 in 2021. What is the average annual inflation rate over this 10 year period? I 2. The company you go work for is located in North Carolina. The state's corporate income tax rate is 3.0%. The current federal tax law is 21%. The President is proposing to increase the federal corporate rate to 21 to 28%. a. (6 points) What is the combined tax rate you will use for your after tax cash flow analysis using the proposed higher federal tax rate? b. (6 points) Would the increase in the federal tax rate increase or decrease the resulting after tax cash flow analysis present worth of your project? 3. (12 points) Given an investment's after tax cash flow analysis, answer the following questions: Suivenhedelico con View Data hot Cart La Vio Z Ang Select WE w EV After-tax MARR S 5 Capitalismes Marta 100,000 30.000 MARR Chase Like 3 Wed . 5 38.000 Aus Saving Us 141 EOY 0 1 Adjusted BTCF $ 0.00 5 1.000 30.000 8000 1 000 1 300 2009 Cash Flow BTCF Depreciatio Taxable income for income n Deduction ATCE Adjusted ATCF Taxes BODO 00 30.000 100.000.000 5 0.000 5000 2005 21.00 1.2005 4200 41.200 3DS 34500 5 20738 15.264 18.450 5 30200 10.200 5 53000 10305 2165 . 2:00 26250 5.000 1 3. 22.120 + 3.000 M.000 (13.680) 22:20 22.10 338.000 31000 113.600 22 103 2220 38.000 6 1 5.000 5 13.500 5 2220 42.920 36.000 11.400 12 1440 4 356) 3000 2008 1 8.00 100 1 20738 45 30290 20:30 $ 5 000 $ 2001 3 9 1600 36.000 34.000 3000 38.000 68.000 1 OL ot 1 1 PW AW- 8 $ 52.771 RR- 124 1615 M a. If the life of the project lasts for 12 years instead 10 years will the project become more or less attractive as an investment for the company? b. Congress passes a law that allows the company to depreciate more dollars earlier. Does this make the project more or less attractive as an investment for the company? APPENDIX C: COMPOUND INTEREST TABLES 64 8% 8% AP 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 Single Payment Compound Present Amount Worth Factor Factor Find F Find P Glven P Glven F F/P P/F 1.080 9259 1.166 .8573 1.260 .7938 1.360 .7350 1.469 6806 1.587 6302 1.714 5835 1.851 5403 1.999 5002 2.159 4632 2.332 4289 2.518 3971 2.720 3677 2.937 3405 3.172 3152 3.426 2919 3.700 2703 3.996 2502 4.316 2317 4.661 2145 .1987 5.437 .1839 5.871 .1703 6.341 1577 6.848 1460 7.396 .1352 7.988 .1252 8.627 1159 9.317 .1073 10.063 .0994 10.86 .0920 Compound Interest Factors Uniform Payment Series Sinking Capital Compound Present Fund Recovery Amount Worth Factor Factor Factor Factor Find A Find A Find F Find P Given F Given P Given A Given A AF FIA PIA 1.0000 1.0800 1.000 0.926 4808 5608 2.080 1.783 3080 .3880 3.246 2.577 2219 3019 4.506 3.312 1705 2505 5.867 3.993 1363 2163 7.336 4.623 .1121 .1921 8.923 5.206 .0940 .1740 10.637 5.747 0801 .1601 12.488 6.247 0690 1490 14.487 6.710 0601 .1401 16.645 7.139 .0527 .1327 18.977 7.536 .0465 .1265 21.495 7.904 0413 .1213 24.215 8.244 .0368 1168 27.152 8.559 .0330 .1130 30.324 8.851 .0296 .1096 33.750 9.122 .0267 -1067 37.450 9.372 0241 .1041 41.446 9.604 0219 1019 45.762 9.8IB ,0198 0998 10.017 .0180 .0980 55.457 10.201 .0164 0964 60.893 10.371 0150 .0950 66.765 .0137 .0937 73.106 10.675 0125 .0925 79.954 10.810 .0114 .0914 87.351 10.935 0105 .0905 95.339 11.051 .00962 0896 103.966 11.158 .00883 0888 113.283 11.258 .00811 ,0881 122346 Arithmetic Gradient Gradient Gradient Uniform Present Series Worth Find A Find P Glven G Glven G NG P/G 0 0 0.481 0.857 0.949 2.445 1.404 4.650 1.846 7372 2.276 10.523 2.694 14.024 3.099 17.806 3.491 21.808 3.871 25.977 4.240 30 266 4.596 34.634 4.940 39.046 5.273 43.472 5.594 47.886 5.905 52.264 6.204 56.588 6.492 60.843 6.770 65.013 7.037 69.090 7.294 73.063 76.926 7.779 80.673 8.007 84 300 3.225 87.804 8.435 91.184 8.636 94.439 8.829 97.569 9.013 100.574 9.190 103,456 nar 6 7 8 9 10 11 12 13 14 15 16 5,034 50.423 18 19 20 21 22 23 24 7.541 10.529 E= = = = = 26 27 28 29 30 11 10 APPENDIX C COMPOUND INTEREST TABLES 645 10% 1 2 3 5 7 5.759 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Single Payment Compound Present Amount Worth Factor Factor Find F Find P Glven P Given F FIP P/F 1.100 .9091 1.210 .8264 1.331 .7513 1.464 .6830 1.611 6202 1.772 5645 1.949 5132 2.144 4665 2.358 4241 2.594 3855 2.853 3505 3.138 3186 3.452 2897 3.797 .2633 4.177 2394 4.595 2176 5.054 .1978 5.560 .1799 6.116 .1635 6.728 ..1486 7.400 .1351 .1228 8.954 .1117 9.850 10.895 0923 11.918 0839 13.110 0763 D3 Compound Interest Factors Uniform Payment Series Sinking Capital Compound Present Fund Recovery Amount Worth Factor Factor Factor Factor Find A Find A Find F Find P Glven F Glven P Given A Glven A AUF MP HA PIA 1.0000 1.1000 1.000 0.909 4762 5762 2.100 1.736 .3021 ,4021 3.310 2.487 2155 3155 4.641 3.170 .1638 2638 6.105 3.791 .1296 2296 7.716 4.355 .1054 2054 9.487 4.868 .0874 .1874 11.436 5.335 0736 .1736 13.579 .0627 1627 15.937 6.145 0540 .1540 18.53 6.495 .0468 .1468 21.384 6.814 .0408 .1408 24.523 7.103 .0357 .1357 27.975 7.367 0315 1315 31.772 7.606 0278 .1278 35.950 7.824 .0247 .1247 40.545 8.022 0219 .1219 45.599 8.201 .0195 1195 51.159 8.365 0175 1175 57.275 8.514 0156 1156 64.003 8.649 1140 71.403 8.772 0126 .1126 0113 79.543 88.497 8.985 0102 1102 98.347 .1092 109.182 9.161 .1083 9.237 121.100 mas 1 10% Arithmetic Gradient Gradient Gradient Uniform Present Serles Worth Find A Find P Glven G Given G ANG P/G 0 0 1 0.476 0.826 0.937 2.329 3 1.381 4.378 4 1.810 6 862 5 2224 9.684 6 2.622 12.763 7 3.004 16.029 8 3.372 19.421 9 3.725 22 891 10 4.064 26.396 11 4.388 29.901 12 4.699 33.377 13 4.996 36 801 14 5.279 40.152 15 5.549 43.416 5.807 46.582 17 6.053 49.640 18 6.286 52.513 6 508 55.407 20 6.719 21 6919 60.689 22 23 63.146 7.100 24 65.481 7.288 25 7.458 67.696 26 69.794 7.619 21 71.777 7.770 28 73.650 7.914 58.110 8.140 0140 1015 8.883 1113 9.077 26 27 28 .00916 00826 14.421 Book Value = Cost Basis - Accumulated Depreciation Capital Gain or Loss - Market Value - Book Value Before-tax MARR After-tax MARR 1-effective income tax rate Combined tax rate=State rate + Federal rate (1 - State rate) Inflation rate for Year Current Year [(CPI INDEX Current Year) - (CPI INDEX Previous Year)] / (CPI INDEX Previous Year) Finding average inflation rate over time using CPI index for F and P: Use: faverage="F/P - 1 1. = 1, +f+I(1) 1.-Market rate, 1= real rate, f-inflation rate I.-..-(1+1) 1.- Market rate, 1. - real rate, f=inflation rate k- Changing Actual Dollars, AS, to Real Dollars, RS (R$) (A = (AS) (P/F, /%,k - b) Special Case: Sell off of machine early: Only get the normal depreciation for the last year. Mallings | VENG377 Spring 2021 Exam 3 003 - Compatibiley Modo Picture Format Tol me 1 . Nam Sabel Normal Page Page Break Custom Full Layout Preview Views Screen Workbook Views Ruler Formula Bar Gridlines Headings Message Bar Show/Hide After-tax MARR = D E Zoom 100% Zoom to Selection Zoom New Arrange Freeze Window All Panes- Al C G H 10% Capital Investment = $ Market Value = $ 180.000 30,000 6% A After-tax 1 MARR = 2 Class Life State tax 3 rate Federal tax 4 rate = 5 effective tax 5 rate 7 DB rate Annual Savings $ 35,000 1 34% Useful Life 10 EOY Adjusted BTCF 50 11 12 13 14 15 15 17 18 19 20 21 1 2 3 4 5 6 7 8 9 10 10 38.00% 200% Cash Flow BTCF Depreciatio Adjusted Taxable income for Income ATCF n Deduction Taxes ATCF S (180,000) 5 (180,000) S (180,000) $ 35,000 $ 36,000 S 36,000 $ 36,000 5 36,000 $ 57,600 $ (21.600) 5 8,208 5 44 2085 44,208 $ 35,000 $ 34,560 5 1.440 S (547) $ 35 453 S 35,453 $ 36,000 $ 20.736 5 15,264 5 (5.800) $ 30,200 $ 30.200 $ 36,000 $ 20.736 $ 15 264 $ (5.800) $ 30,200 $ 30.200 $ 36,000 $ 10,3685 25,632 S (9.740) $ 26 260S 28,260 $ 35,000 5 $ 36,000 $ (13.680) 5 22,320 $ 22 320 $ 30,000 $ 5 36,000 S (13,680) 5 22.320 S 22.320 $ 35,000 $ S 36,000 $ (13.680) $ 22.320 5 22,320 $ 36,000 $ 5 36,000 $ (13,680) 5 22,3205 40,920 5 30,000 $ 30,000 S (11,400) 5 18.600 5 $ $ $ 5 $ $ $ $ s 5 (180,000) 36,000 36,000 36,000 36.000 35,000 36,000 36,000 36,000 36.000 65,000 PW $ AW 5 IRR 17,209 2.801 12.4% 5 5 52.771 8.588 16.1% 24 23 26 Sheet1