5. Given: First cost = $1,000,000 Salvage value after 5 years = $400,000 N= 7 year life Annual O&M costs of $250,000/year Annual savings of $300,000/year After-tax MARR = 4% Taxes = 35% CCA rate = 20% Purchased in 2022 What is the after-tax Net Present Value (NPV)?

5. Given: First cost = $1,000,000 Salvage value after 5 years = $400,000 N= 7 year life Annual O&M costs of $250,000/year Annual savings of $300,000/year After-tax MARR = 4% Taxes = 35% CCA rate = 20% Purchased in 2022 What is the after-tax Net Present Value (NPV)?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter13: Capital Budgeting: Estimating Cash Flows And Analyzing Risk

Section: Chapter Questions

Problem 3P

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Concept explainers

Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.

Question

5. Given:
Salvage value after 5 years = $400,000
N= 7 year life
First cost = $1,000,000
Annual O&M costs of $250,000/year
Annual savings of $300,000/year
After-tax MARR = 4%
Taxes = 35%
CCA rate = 20%
Purchased in 2022
What is the after-tax Net Present Value (NPV)?

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