Harper Corporation has the following information about the purchase of a new piece of equipment: Cash revenues less cash expenses $50,000 per year Cost of equipment $130,000 Salvage value at the end of the 8th year $22,000 Increase in working capital requirements $35,000 Tax rate 25 percent Life 8 years The cost of capital is 13 percent. Required: Calculate the following assuming that depreciation expense is $24,000, $21,000, $18,000, $15,000, $12,000, $9,000, $6,000 and $3,000 for years 1 through 8, respectively: Calculate the after-tax cash flows for each of the eight years. Calculate the after-tax payback period. Calculate the net present value (NPV). Calculate the internal rate of return (IRR).
Harper Corporation has the following information about the purchase of a new piece of equipment:
Cash revenues less cash expenses $50,000 per year
Cost of equipment $130,000
Salvage value at the end of the 8th year $22,000
Increase in
Tax rate 25 percent
Life 8 years
The cost of capital is 13 percent.
Required:
- Calculate the following assuming that
depreciation expense is $24,000, $21,000, $18,000, $15,000, $12,000, $9,000, $6,000 and $3,000 for years 1 through 8, respectively: - Calculate the after-tax cash flows for each of the eight years.
- Calculate the after-tax payback period.
- Calculate the
net present value (NPV). - Calculate the
internal rate of return (IRR).
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