"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?"

Expert Solution


Cashflows
		1	2	3	4	5
Incremental revenue		144000	144000	144000	144000	144000
Less: Incremental expensnes		29000	29000	29000	29000	29000
Less: Depreciation		64305	110205	78705	56205	40185
Before tax Income		50695	4795	36295	58795	74815
Less: tax @ 21%		10645.95	1006.95	7621.95	12346.95	15711.15
After tax income		40049.05	3788.05	28673.05	46448.05	59103.85

After tax salavge:
Book value at the end of 5th yr (450000*22.31%)				100395
Sale value of assets				176000
Gain on sale				75605
tax on sale				15877
Net after tax salvage				59728

NPV
	0	1	2	3	4	5
Investment	-450000
Annual cashflows		40049.05	3788.05	28673.05	46448.05	59103.85
After tax salvage						59728
Net cashflows	-450000	40049.05	3788.05	28673.05	46448.05	118831.9
PVF at 18%	1	0.847458	0.718184	0.608631	0.515789	0.437109
Present value of CF	-450000	33939.87	2720.519	17451.3	23957.39	51942.5
NPV	-319988

jeff jeffy answered 10 months ago

"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?"

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?

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?

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...

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...

Three years ago, you purchased some 5-year MACRS equipment at a cost of $135,000. The MACRS...

Three years ago, you purchased some 5-year MACRS equipment at a cost of $135,000. The MACRS rates are 20 percent, 32 percent, 19.2 percent, 11.52 percent, 11.52 percent, and 5.76 percent for Years 1 to 6, respectively. You sold the equipment today for $82,500. Which of these statements is correct if your tax rate is 23 percent and you ignore bonus depreciation? Multiple Choice The tax due on the sale is $10,032.60. The book value today is $40,478. The book...

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...

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

ABC purchased $38270 of equipment 2 years ago. The equipment is 7-year MACRS property. What is...

ABC purchased $38270 of equipment 2 years ago. The equipment is 7-year MACRS property. What is the current book value of the equipment? The MACRS allowance percentages are as follows, starting with Year 1: 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 answer is $12.345 then enter as 12.35 in the answer box.

Question