6a. A large profitable corporation is considering a capital investment of $50,000. The equipment has a projected salvage value of $0 at the end ofthe two-year project period. The annual gross income each of the next two years is projected to be $44,000 and expenses are projected to be$14,000 annually. The depreciation amount will be $25,000 annually. This profitable corporation has an incremental income tax rate of 25% andthe MARR is 10%.The corporation has decided to use borrowed capital to finance a portion of the equipment purchase. It will pay $30,000 down and finance thebalance at an effective interest rate of 5%, to be repaid in two equal end-of-year payments (see loan details below).PaymentBoYEoYYearBalanceTotalInterestPrincipalBalance1$30,000.00 $16,134.15 $1,500.00 $14,634.15 $15,365.8515,365.8516,134.15768.2915,365.850.0032,268.292,268.2930,000.00Determine the after-tax CF for Year 2 (only – not the total).

After tax cash flow for Year 2 can be calculated by using this equation After tax cash flow for…

A large profitable corporation is considering a capital investment of $50,000. The equipment has a projected salvage value of $0 at e two-year project period. The annual gross income each of the next two years is projected to be $44,000 and expenses are projecte 4,000 annually. The depreciation amount will be $25,000 annually. This profitable corporation has an incremental income tax rate c e MARR is 10%. e corporation has decided to use borrowed capital to finance a portion of the equipment purchase. It will pay $30,000 down and fu ance at an effective interest rate of 5%, to be repaid in two equal end-of-year payments (see loan details below). Payment BoY Balance EoY Year Total Interest Principal Balance $30,000.00 $16,134.15 $1,500.00 $14,634.15 $15,365.85 768.29 2,268.29 1 15,365.85 16,134.15 15,365.85 0.00 32,268.29 30,000.00

A large profitable corporation is considering a capital investment of $50,000. The equipment has a projected salvage value of $0 at e two-year project period. The annual gross income each of the next two years is projected to be $44,000 and expenses are projecte 4,000 annually. The depreciation amount will be $25,000 annually. This profitable corporation has an incremental income tax rate c e MARR is 10%. e corporation has decided to use borrowed capital to finance a portion of the equipment purchase. It will pay $30,000 down and fu ance at an effective interest rate of 5%, to be repaid in two equal end-of-year payments (see loan details below). Payment BoY Balance EoY Year Total Interest Principal Balance $30,000.00 $16,134.15 $1,500.00 $14,634.15 $15,365.85 768.29 2,268.29 1 15,365.85 16,134.15 15,365.85 0.00 32,268.29 30,000.00

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 15P

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