Final_ISE460_F07_sol

Final_ISE460_F07_sol - ISE 460 FINAL 12/13/07 Problem No. 1...

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Fall 2007 FINAL 12/13/07 Problem No. 1 One would not invest as the NPV is negative 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 B C D E F G Cost Basis $200,000 Type 3 Year MACRS Income Tax rate 15% Interest on borrowed funds = 10.0% MARR 10.0% General inflation rate = 5% Year 0 1 2 3 Income Statement Inflation rate Revenues: 110,000 $ 140,000 $ 95,000 $ Expenses 5% 42,000 $ 44,100 $ 46,305 $ Depreciation 66,667 $ 88,889 $ 14,815 $ Debt Interest 4,000 $ 2,792 $ 1,462 $ Taxable Income (2,667) $ 4,220 $ 32,418 $ Income taxes (400) $ 633 $ 4,863 $ Net Income (2,267) $ 3,587 $ 27,555 $ Cash Flow Statement Operating Activities Net Income (2,267) $ 3,587 $ 27,555 $ Depreciation 66,667 $ 88,889 $ 14,815 $ Investment Activities Investment ($200,000) Salvage 40,000 $ Gains Tax ($1,556) Financing activities Borrowed funds 40,000 Principal Repayment ($12,085) ($13,293) ($14,622) Net Cash Flow (Actual $) ($160,000) $52,315 $79,182 $66,192
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Final_ISE460_F07_sol - ISE 460 FINAL 12/13/07 Problem No. 1...

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