Please show the details of the problem 6. Your company is considering a purchase
ID: 1115504 • Letter: P
Question
Please show the details of the problem
6. Your company is considering a purchase of equipment for $180,000. The equipment will increase revenues by $48,000 and expenses by $12,000 in each of its 10 years of service. At the end of the tenth year, you expect to sell it for $30,000. The machinery is in the MACRS 5-year property class. The combined corporate marginal tax rate is 38%. The MARR is 10%. For each year (0-10) calculate taxable income, income taxes, before-tax cash flow, and after-tax cash flow. Calculate after-tax NPV and IRR. Show your calculations, either by uploading a spreadsheet with the Blackboard Assignments tool (so I can confirm the formulas you used) or by giving the formulas you used for all calculations. Bottom line: I need these numbers with supporting calculations Time Period Taxable Income After-tax Before-taxAfter-tax Income Taxes Cash FlowCash Flow 4 10 NPV = IRR Invest? (yes or noExplanation / Answer
The table in the form of cash flow statement is given below
Notes:
Net present value is (excel function) = NPV(10%,D19:M19)+ (-180,000) = 17208.86.
D19 to M19 are the cash flows starting from 36000 to 40920
Depretiation rates are 20%, 32%, 19.2%, 11.52%, 11.52%, 5.76%. Depreciation is computed in the table. Taxable income = Revenue - (depreciation + expenses).
After tax income = taxable income - taxes.
SInce the equipment is already depreciated, book value is 0 and so salvage value is full 30000. Gain tax is 38%*3000 = -11400 so the last year has an additional cash flow of 30000 - 11400 = 18600.
IRR = 12% so investment is accepted.
Year 0 1 2 3 4 5 6 7 8 9 10 Income statement Revenues 48000 48000 48000 48000 48000 48000 48000 48000 48000 48000 Expenses 12000 12000 12000 12000 12000 12000 12000 12000 12000 12000 Depreciation 36000 57600 34560 20736 20736 10368 0 0 0 0 Taxable income 0 -21600 1440 15264 15264 25632 36000 36000 36000 36000 Taxes 0 -8208 547 5800 5800 9740 13680 13680 13680 13680 After tax income 0 -13392 893 9464 9464 15892 22320 22320 22320 22320 Cash flow statement Net income 0 -13392 893 9464 9464 15892 22320 22320 22320 22320 Depreciation 36000 57600 34560 20736 20736 10368 0 0 0 0 Investment activities Investment -180000 Before tax cash flow -180000 36000 44208 35453 30200 30200 26260 22320 22320 22320 22320 Salvage 30000 Gains tax -11400 After tax cash flow -180000 36000 44208 35453 30200 30200 26260 22320 22320 22320 40920