A corporate expects to receive $37,119 each year for 15 years if a particular project is...

A corporate expects to receive $37,119 each year for 15 years if a particular project is undertaken. There will be an initial investment of $118,535. The expenses associated with the project are expected to be $7,570 per year. Assume straight-line depreciation, a 15-year useful life, and no salvage value. Use a combined state and federal 48% marginal tax rate, MARR of 8%, determine the project's after-tax net present worth

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Expert Solution

Solution :-

Depreciation Per Year = $118,535 / 15 = $7,902.33

Annual Revenue = $37,119

Annual Expenses = $7,570

Net Annual Saving = $37,119 - $7,570 = $29,5499

Less :- Depreciation = $7,902.33

Taxable Annual Income = $21,646.67

Tax Expense = $21,646.67 * 48% = $10,390.40

After tax Income = $21,646.67 - $10,390.40 = $11,256.27

Annual Operating Cash Inflow = After Tax Income + Depreciation = $11,256.27 + $7,902.33 = $19,158.6

Now Project After tax Net Present Worth = Annual Cash flow * PVAF ( 8% , 15 ) - Initial Investment

= $19,158.60 * PVAF ( 8% , 15 ) - $118,535

= ( $19,158.60 * 8.559 ) - $118,535

= $45,452.63

The project's after-tax net present worth = $45,452.63

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Rahul Sunny answered 1 year ago

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