A corporation with $7million in annual taxable income and no state tax is considering two alternatives: Before - Tax Cash Flow ($1000) Alt 2 -$20000 4,500 Year Alt 1 -$10000 1-10 4,500 11-20 4,500 Both alternatives will be depreciated by 40% bonus depreciation taken in year 0 plus 10-year MACRS depreciation. Neither alternative is to be replaced at the end of its useful life. If the corporation has a minimum attractive rate of return of 10% after taxes, which alternative should it choose? Solve the problem by: (a) Present Worth Analysis (b) Annual Cash Flow Analysis (C) Rate of Return Analysis

A corporation with $7million in annual taxable income and no state tax is considering two alternatives: Before - Tax Cash Flow ($1000) Alt 2 -$20000 4,500 Year Alt 1 -$10000 1-10 4,500 11-20 4,500 Both alternatives will be depreciated by 40% bonus depreciation taken in year 0 plus 10-year MACRS depreciation. Neither alternative is to be replaced at the end of its useful life. If the corporation has a minimum attractive rate of return of 10% after taxes, which alternative should it choose? Solve the problem by: (a) Present Worth Analysis (b) Annual Cash Flow Analysis (C) Rate of Return Analysis

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter2: Financial Statements, Cash Flow,and Taxes

Section: Chapter Questions

Problem 4P: Nicholas Health Systems recently reported an EBITDA of $25.0 million and net income of $15.8...

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