Suppose an asset has a purchase cost of $15,000, a life of five years, a salvage value of $3,000 at the end of five years, and a net annual before-tax revenue of $7,500. The firm's marginal tax rate is 35%. The asset will be depreciated by five-year MACRS.(a) Determine the cash flow after taxes, assuming that the purchase cost will be entirely financed by the equity funds.(b) Rework part (a), assuming that the entire investment would be financed by a bank loan at an interest rate of 9%.(c) Given a choice between paying the purchase cost up front from the firm's equity and using the financing method of part (b), show calculations to justify which is the better choice at an interest rate of 9%.

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A: The investment = $460,000 Cost of capital = 5%  Terminal Value = $40,000

Q: Drake Corporation is reviewing an investment proposal. The initial cost is $106,200. Estimates of…

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A:

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Q: Northern Inc. purchases an asset for​ $150,000. This asset qualifies as a five−year recovery asset…

A: Solution:- Calculation of cash flow from​ disposal as follows under:-

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A: Terminal cash flow is cash flow you received at end of projects after disposal of equipment.So this…

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A:

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A: Since you have posted a question with multiple sub-parts, we will solve the first three sub-parts…

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A: Calculation of  after tax cash flow Discounted Cash flow Concept

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A: Annual depreciation =(Cost-Salvage value)/Useful Life =(10000-3000)/5 =$1400/year

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A:

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A: A. NPV = Cash inflow- Cash outflow Cash outflow= $ 10 million Cash inflow= Net profit/ interest rate…

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.