EGR310 Midterm 2

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School

National University *

*We aren’t endorsed by this school

Course

310

Subject

Finance

Date

May 16, 2024

Type

jpg

Pages

1

Uploaded by CoachDangerNightingale31 on coursehero.com

pr— . R | Purchase 250? Salvage | 5000 MACRS YR SL SLBV | MACRS | M Dep BV 1 $4,000 | $21,000 | 20.00% | $5,000 | $20,000 2 $4,000 | $17,000 | 32.00% | $8,000 | $12,000 3 $4,000 [ISIBO00N 19.20% | $4,800 | $7,200 4 $4,000 | $9,000 | 11.52% | $2,880 | $4,320 5 $4,000 | $5,000 | 11.52% | $2,880 | $1,440 | $20,000 $23,560 5. (1.5pts) A company paid $89,650 for a machine to make a new product. The machine hasa 4 year life and a salvage value of $7,000. The company makes $30,000 per year on the new product. Assuming a 34% tax rate and straight-line depreciation, what is the before tax and after tax rates of return on the investment over its 4 year life? (Do not interpolate. Round to the closest rate in appendix C of the book). (Chapter 12) Soln: Tax YR Investmt | Profit | Salvage | BTCF Dep Inc Tax ATCF % 0 -$89,650 $89,650 $89,650 ' 1 $30,000 $30,000 | -520,663 | $9,338 | $3,175 | $26,825 2 $30,000 $30,000 | -$20,663 | $9,338 | $3,175 | $26,825 3 $30,000 $30,000 | -$20,663 | $9,338 | $3,175 | $26,825 4 $30,000 | $7,000 | $37,000 | -$20,663 | $9,338 | $3,175 | $33,825 IRR 15.00% 10.08% BTCF IRR -> 89650 = 30,000(P/A, i, 4) + 7000(P/F, i, 4) @ 15% 30,000(2.855) + 7,000(.5718) = 89,653 ATCF IRR -> 89650 = 26,825(P/A, i, 4) + 7000(P/F, i, 4) @ 10% 26,825(3.170) + 7,000(.6830) = 89,816
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