Chapter 12 Assignment

Chapter 12 Assignment - Chapter 12 Assignment Cash Flow...

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Chapter 12 Assignment Cash Flow Problem #1 Given: Building cost is $50,000. Machine cost is $14,500. Installation cost of machine is $500. Investment in Net Working Capital is $8,000. All costs above will be paid in 2003. Beginning in 2004, the machine is depreciated using MACRS: Year: 1 2 3 4 Rate:          33%             45%              15%                7%   Beginning in 2004, the building is depreciated using MACRS: Year: 1 2 3 4 Rate:         1.3%              2.6%             2.6%              2.6% Beginning in 2004, annual revenues are expected to be $40,000  and annual costs are $24,000.  The firm’s tax rate is 30% and their cost  of capital is 9%. This investment is to be evaluated over a 5 year period (2003- 2007).  At the end of 5 years (in 2007), the machine will be sold for  $2,000 and the building will be sold for $47,000. Calculate the after-tax cash flows for each year (2003-2007) and  determine the NPV and IRR. Solution: Depreciation (Machine) Year Depr. % Depreciation  Book Value   1        33%         $4,950    $10,050   2    45%                6,750       3,300   3    15%                2,250       1,050   4      7%                1,050   0
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Depreciation (Building) Year Depr. % Depreciation  Book Value   1        1.3%              $650    $49,350   2    2.6%    1,300      48,050   3    2.6%    1,300
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This note was uploaded on 03/24/2008 for the course BUS 320 taught by Professor Sloan during the Fall '08 term at N.C. State.

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Chapter 12 Assignment - Chapter 12 Assignment Cash Flow...

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