Your company purchased an airplane for $470,000 and will depreciate it using a 7-year MACRS with...

Your company purchased an airplane for $470,000 and will depreciate it using a 7-year MACRS with a 6-year life. Salvage value in year 6 is expected to be $160,000. The airplane is expected to increase company revenues by $179,000 per year. However, O&M costs are expected to be $20,000 per year. Your company is in the 21% tax bracket and the company's MARR is 15%. What is the Net Present Worth of this investment?

Expert Solution

	A	B	C	D=A-B-C	*E=D21%**	I	F=D-E+C+I	G	*FG**	Cost of asset		4,70,000
Year	Cash from Revenue in ($ Mn)	Cash Outflow (in $Mn)	Depreciation	Taxable Income	Tax @21%	Salvage Value net of tax	After tax CF	MARR @15%	PV	Year	Rate	Depreciation
Year 0		-4,70,000.00					-4,70,000.00	1.0000	-4,70,000.00	Year 1	14.29%	67,163.00
Year 1	1,79,000.00	20,000.00	67,163.00	91,837.00	19,285.77		1,39,714.23	0.8696	1,21,490.63	Year 2	24.49%	1,15,103.00
Year 2	1,79,000.00	20,000.00	1,15,103.00	43,897.00	9,218.37		1,49,781.63	0.7561	1,13,256.43	Year 3	17.49%	82,203.00
Year 3	1,79,000.00	20,000.00	82,203.00	76,797.00	16,127.37		1,42,872.63	0.6575	93,941.07	Year 4	12.49%	58,703.00
Year 4	1,79,000.00	20,000.00	58,703.00	1,00,297.00	21,062.37		1,37,937.63	0.5718	78,866.29	Year 5	8.93%	41,971.00
Year 5	1,79,000.00	20,000.00	41,971.00	1,17,029.00	24,576.09		1,34,423.91	0.4972	66,832.44	Year 6	8.92%	41,924.00
Year 6	1,79,000.00	20,000.00	41,924.00	1,17,076.00	24,585.96	1,39,615.93	2,74,029.97	0.4323	1,18,470.72	Depreciated Amount		4,07,067
							5,08,760.00	PW	1,22,857.59	Book Value (470000-407067)		62,933
										Salvage Value		1,60,000
										Capital Gain (160000-62933)		97,067
										Tax on Capital gain @21%*97067		20,384
		1								Salvage Value net of tax (160000-20384)		1,39,616
										It is assumed that company will pay tax at 21% on capital gains

Present Worth = Present Value of Cash Inflow - Present Value of cash Outflow.

Please Upvote and Support!!

Rahul Sunny answered 8 months ago

"You purchased an airplane for $450,000 and will depreciate it using a 7-year MACRS with a...

"You purchased an airplane for $450,000 and will depreciate it using a 7-year MACRS with a 5-year life. Salvage value in year 5 is expected to be $176,000. The airplane is expected to increase revenues by $144,000 per year. However, O&M costs are expected to be $29,000 per year. Your company is in the 21% tax bracket and your MARR is 18%. What is the Net Present Worth of this investment?"

"You purchased an airplane for $494,000 and will depreciate it using a 7-year MACRS with a...

"You purchased an airplane for $494,000 and will depreciate it using a 7-year MACRS with a 5-year life. Salvage value in year 5 is expected to be $188,000. The airplane is expected to increase revenues by $193,000 per year. However, O&M costs are expected to be $29,000 per year. Your company is in the 21% tax bracket and your MARR is 20%. What is the Net Present Worth of this investment?"

Park Equipment Leasing purchased a new milling machine for $1.8 million. They depreciate it using MACRS...

Park Equipment Leasing purchased a new milling machine for $1.8 million. They depreciate it using MACRS (5-year property). They lease it to Valles Global Industries for $600,000 a year for eight years. Under the Park-O-Matic leasing option, Valles Global owns the machine after the eight years. Park Equipment leasing uses an After-Tax MARR of 12% and pays 38% income tax. Is this a profitable deal for Park Equipment leasing?

Please use the MACRS to depreciate Your company wants to build a new manufacturing facility which...

Please use the MACRS to depreciate Your company wants to build a new manufacturing facility which will cost $2 million for plant building and $800,000 for machinery. It will have a net annual cash flow of $750,000 for the next 10 years. You could build it in your US location where your total incremental tax rate would be 45%. However, you are also considering building it in Ireland with incremental tax rate 12.5% . Calculate the after-tax present worth of...

ABC Company purchased $94118 of equipment 4 years ago. The equipment is 7-year MACRS property. The...

ABC Company purchased $94118 of equipment 4 years ago. The equipment is 7-year MACRS property. The firm is selling this equipment today for $5129. What is the After-tax Salvage Value if the tax rate is 15%? The MACRS allowance percentages are as follows, commencing with year one: 14.29, 24.49, 17.49, 12.49, 8.93, 8.92, 8.93, and 4.46 percent. Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your...

ABC Company purchased $50484 of equipment 5 years ago. The equipment is 7-year MACRS property. The...

ABC Company purchased $50484 of equipment 5 years ago. The equipment is 7-year MACRS property. The firm is selling this equipment today for $8128. What is the After-tax Salvage Value if the tax rate is 35 percent? The MACRS allowance percentages are as follows, commencing with year one: 14.29, 24.49, 17.49, 12.49, 8.93, 8.92, 8.93, and 4.46 percent. Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if...

You intended to buy new equipment for $2,000,000, you will depreciate it in value using MACRS...

You intended to buy new equipment for $2,000,000, you will depreciate it in value using MACRS depreciation for a 5-year property. The equipment will then be leased to a friend for $500,000 per year for 4 years. After 4 years, it will be sold to your friend for $700,000. 5-year MACRS schedule: year 1 = 20% year 2 = 32% year 3 = 19.2% year 4 = 11.52% year 5 = 11.52% year 6 = 5.76% a) what is the...

A company purchased a building at the beginning of the year for $200,000 and is using straight-line depreciation to depreciate it over 20 years.

A company purchased a building at the beginning of the year for $200,000 and is using straight-line depreciation to depreciate it over 20 years. The salvage value of the building is $50,000. Prepare the adjusting entry to record the depreciation expense for the current year. DEBIT: Accumulated Depreciation for $5,000; CREDIT: Depreciation Expense for $5,000 DEBIT: Accumulated Depreciation for $7,500; CREDIT: Depreciation Expense for $7,500 DEBIT: Depreciation Expense for $5,000; CREDIT: Accumulated Depreciation for $5,000 DEBIT: Depreciation Expense for...

You purchased a machine for $500,000 (installed), and you depreciated it using a 5 year MACRS....

You purchased a machine for $500,000 (installed), and you depreciated it using a 5 year MACRS. This machine generates $200,000 in annual revenue. In year 4, you sold the machine for $250,000. You received a loan for $400,000 on a 5 year loan at 5% (note, you must pay the remaining balance of this loan at the end of year 4 from the proceeds of the sale). In addition, you invested $80,000 in working capital initially. Your company is in...

Deer and Doe purchased $120,000 of equipment six years ago. The equipment is 7-year MACRS property....

Deer and Doe purchased $120,000 of equipment six years ago. The equipment is 7-year MACRS property. The firm is selling this equipment today for $24,500. What is the after-tax cash flow from this sale if the tax rate is 35 percent? Year 1 2 3 4 5 6 7 8 Percent 14.29 24.49 17.49 12.49 8.93 8.93 8.93 4.45 a. $27,455.40 b. $25,785.40 c. $15,925.00 d. $21,544.60 e. $18,209.60

Question