1.22. Consider the following investment, in an inflation-free economy. Gamma High-Tech Company is considering the purchase of a $10,000 asset that will be ased for only 2 years (project life). The salvage value of this asset at the end of 2 rears is expected to be $4,000. The asset will generate annual revenue of $20,000 out is expected to have an annual expense of $5,00o0. The investment will be classified as a 3-MACRS property (tax life) with annual depreciation allowances of $3,333, $4,444, $1,481, and $741. The marginal income tax rate for the firm is 25%. The firm's inflation-free interest rate (i') is 10%. a. Determine the after-tax cash flow (ATC) for this investment project. b. The firm expects an average inflation rate (f) of 5% during the project period, but it also expects an 8% annual increase in revenue and a 6% annual increase in expense. No increase in salvage value is expected. Compute the present

1.22. Consider the following investment, in an inflation-free economy. Gamma High-Tech Company is considering the purchase of a $10,000 asset that will be ased for only 2 years (project life). The salvage value of this asset at the end of 2 rears is expected to be $4,000. The asset will generate annual revenue of $20,000 out is expected to have an annual expense of $5,00o0. The investment will be classified as a 3-MACRS property (tax life) with annual depreciation allowances of $3,333, $4,444, $1,481, and $741. The marginal income tax rate for the firm is 25%. The firm's inflation-free interest rate (i') is 10%. a. Determine the after-tax cash flow (ATC) for this investment project. b. The firm expects an average inflation rate (f) of 5% during the project period, but it also expects an 8% annual increase in revenue and a 6% annual increase in expense. No increase in salvage value is expected. Compute the present

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter22: Inflation

Section: Chapter Questions

Problem 33P: The index number representing the price level changes from 110 to 115 in one year and then from 115...

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