Question
In: Finance
7. Please solve in Excel and round to 3 decimal places: YEAR DEPRECIATION FACTOR 1 33.33%...
7. Please solve in Excel and round to 3 decimal places:
| YEAR | DEPRECIATION FACTOR |
| 1 | 33.33% |
| 2 | 44.45% |
| 3 | 14.81% |
| 4 | 7.41% |
The original cost of the new production line is estimated at $3 million and falls into 3 year MACRS. This is a 3 year project. Expected annual sales are $2,950,000 per year, with associated annual costs of $1,250,000. The project requires a net working capital of $375,000. They can usually sell their production lines for 40% of their original costs at the end of the project. The tax rate is 32% and the relevant interest rate is 15%.
a. What is the relevant cash flow for year 0?
b. What is the OCF for year 1 (please solve in Excel)?
c. What is the after tax salvage value of the production line (please solve in Excel)?
Solutions
Expert Solution
a: Cash flow in year 0 = Cost of machine +net working capital
= -3000000-375000
=-3375000
b: OCF in year 1= (Sales-cost)*(1-Tax) +tax*depreciation
= (2950000-1250000)*(1-32%)+ 32%*33.33%*3000000
=1475968
c: After tax salvage = Salvage*(1-tax)
=40%*3000000*(1-32%)
= 816000
jeff jeffy answered 6 months agoRelated Solutions
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MACRS Depreciation Allowances Property Class Year 3-Year 5-Year 7-Year 1 33.33% 20.00% 14.29% 2 44.45 32.00 ...
MACRS Depreciation Allowances
Property Class
Year
3-Year
5-Year
7-Year
1
33.33%
20.00%
14.29%
2
44.45
32.00
24.49
3
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8.93
8
4.46
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MACRS Depreciation Allowances
Property Class
Year
3-Year
5-Year
7-Year
1
33.33%
20.00%
14.29%
2
44.45
32.00
24.49
3
14.81
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