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?
In: Economics
You need to borrow money today from your father. You can make payments like this: 1st year: $1000, 2nd year: $2,000, 3rd year: $3,000, 4th year: $4,000, 5th year: $5,000. Your dad says that hes getting 4% on his CDs, compounded annually, and you'll need to pay him the same rate. How much can you borrow?
In: Finance
Calculate the effective interest rate for the following nominal interest rates:
a. Interest rate of 11% per year, compounded annually
b. Interest rate of 11% per year, compounded semi-annually
c. Interest rate of 11% per year, compounded quarterly
d. Interest rate of 11% per year, compounded daily e. Interest rate of 11% per year, compounded continuously
In: Economics
Bobby Bragg has decided to buy a 10-year old car from Banger Motors for $6 000. Rockwelle Finance has offered Bobby a 4-year loan at an annual interest rate of 15% p.a. with annual payments at the end of each year.
Required:
(1) What is Bobby’s annual loan repayment amount?
(2) What is the principal component of the year 2 loan repayment?
(3) What is the interest component of the year 3 loan repayment?
(4) What is the opening balance of the loan at the commencement of year 4?
In: Finance
Whitestone Products is considering a new project whose data are shown below. The required equipment has a 3-year tax life, and the MACRS rates for such property are 33.33%, 44.45%, 14.81%, and 7.41% for Year 1 through Year 4. Revenues and other operating costs are expected to be constant over the project’s 10-year expected operating life. What is the project’s Year 4 cash flow?
Equipment cost (depreciable basis) | $50,000 |
Sales revenues, each year | $40,212 |
Operating costs (excluding depreciation) | $20,222 |
Tax rate | 32% |
In: Finance
Solo Corp. is evaluating a project with the following cash flows:
Year Cash Flow 0 –$13,200
Year 1 Cash Flow $6,100
Year 2 Cash Flow $6,700
Year 3 Cash Flow $6,200
Year 4 Cash Flow $5,100
Year 5 Cash Flow $–4,500
The company uses a disount rate of 11 percent and a reinvestment rate of 9 percent on all of its projects. Calculate the MIRR of the project using all three methods using these interest rates.
a. MIRR using the discounting approach.
In: Finance
Solo Corp. is evaluating a project with the following cash flows:
Year Cash Flow 0 –$28,600
Year 1 Cash Flow $10,800
Year 2 Cash Flow $13,500
Year 3 Cash Flow $15,400
Year 4 1Cash Flow $2,500
Year 5 Cash Flow $–9,000
The company uses an interest rate of 9 percent on all of its projects. Calculate the MIRR of the project using all three methods.
a. MIRR using the discounting approach.
b. MIRR using the reinvestment approach.
c. MIRR using the combination approach.
In: Finance
Your company has a $1,000,000. loan for a new assembly station. The interest rate for this loan is 7% compounded annually. Your company will make $100,000 payment at the end of each year, starting the end of the first year. By calculation, your company will make 18 annual payments. Payments for Year-1 through Year-17 are the same at $100,000. Payment for the last Year-18 will be less than $100,000. To payback this loan of 1M based on this payment plan, how much is the last payment for Year 18?
72,659.61
80,037.86
24,931.59
73,110.63
91,563.48
In: Economics
At the end of its first year of business, Fred Company reported $120,000 of unearned subscription revenues. This unearned revenue was Fred’s only temporary difference. In its second year of business, Fred reported pretax financial income of $200,000. At the end of Fred’s second year, the unearned subscription revenues account decreased to $90,000 and Fred estimates it will reverse in year 3. The enacted tax rate for every year is 20%. Prepare the journal entry to record Fred’s income tax expense, deferred taxes, and income taxes payable for its second year.
In: Accounting
Solo Corp. is evaluating a project with the following cash flows:
Year 0 Cash Flow –$ 29,100
Year 1 Cash Flow $11,300
Year 2 Cash Flow $14,000
Year 3 Cash Flow $15,900
Year 4 Cash Flow $13,000
Year 5 Cash Flow $– 9,500
The company uses an interest rate of 8 percent on all of its projects.
a. Calculate the MIRR of the project using the discounting approach.
b. Calculate the MIRR of the project using the reinvestment approach.
c. Calculate the MIRR of the project using the combination approach.
In: Finance