New sattelite dish purchased in Dec. of 20x0 Equipment cost: $200,000 Old equipm
ID: 2351529 • Letter: N
Question
New sattelite dish purchased in Dec. of 20x0
Equipment cost: $200,000
Old equipment can be sold now for $20,000
Expect improved capabilities to result in additional revenue of $80,000 per year for the useful life (7 years)
Icremental operating expenses are $10,000 per year
The new satellite dish will be depreciate under the MACRS depreciation schedule for the 5 year property class. Company tax rat is 40%.
Company president expects the real rate of interest in the economy to remain stable at 10%. Inflation rate will remain at 20%
Time 0 cash outflow: $188,000
1) Compute pprice index for each year from 20x1 through 20x7using 1.0000 as the index for 20x1
2) Prepare a schedule of after tax cashflows measured in real dollars
3) Compute the net present value of the proposednew satellite dish using cash flows measured in real dollars. use a real discount rate equel to the real interest rate.
Any guidance is greatly appreciated!!
Explanation / Answer
here are the two lectures which will help you dear please go through it and you will be able to do the question yourself http://www.slideshare.net/parksiteat/chapter-10-the-fundamentals-of-capital-budgeting http://www.slideshare.net/rohitkanodia/principles-of-accounting-12968245