Electronic Games is moving very quickly to introduce a new interrelated set of video games. The initial investment for equipment to produce the necessary electronic components is $9 million, with $4 million borrowed at 12% over 6 years and paying only the interest each year and the entire principal in the last year. The salvage value after 6 years is $700,000. Anticipated net contribution to income is $6 million the first year, decreasing by $1 million each year for 6 years, with all dollar amounts expressed in real or constant dollars. Depreciation follows MACRS 5-year property, taxes are 25%, the real MARR is 18%, and inflation is 4%. Solve, a. Determine the actual or then-current after-tax cash flows for each year. b. Determine the PW of the after-tax cash flows. c. Determine the AW of the after-tax cash flows. d. Determine the FW of the after-tax cash flows. e. Determine the combined IRR of the after-tax cash flows. f. Determine the combined ERR of the after-tax cash flows. g. Determine the real IRR of the after-tax cash flows. h. Determine the real ERR of the after-tax cash flows.
Electronic Games is moving very quickly to introduce a new interrelated set of video games. The initial investment for equipment to produce the necessary electronic components is $9 million, with $4 million borrowed at 12% over 6 years and paying only the interest each year and the entire principal in the last year. The salvage value after 6 years is $700,000. Anticipated net contribution to income is $6 million the first year, decreasing by $1 million each year for 6 years, with all dollar amounts expressed in real or constant dollars.
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