Abbot placed into service a flexible manufacturing cell costing $850,000 early t

Question

Abbot placed into service a flexible manufacturing cell costing $850,000 early this year. They financed $425,000 of it at 11% per year over 5 years. Gross income due to the cell is expected to be $750,000 with deductible expenses of $475,000. Depreciation is based on MACRS-GDS and the cell is in the 7 year property class. Abbot’s marginal tax rate is 40%, MARR is 10% after taxes, and they expect to keep the cell for 8 years. Loan is payed by making equal principal-plus-interest end-of-period payments. Calculate Present Worth after Tax.

Explanation / Answer

Abbot Year Cash outflow for cell Cash Inflow-Gross Income Cash outflow-Deductiable expenses Interest Depreciation rate as per Macrs-Gds Depreciation on cost of cell of Income before taxes Taxes@40% Income After taxes Net Cash Inflows=Income after taxes+Depreciation-Cash outflow for cell PVIF@10% Present Value of Net Cash flows 850000 0 425000 -425000 1 -425000 1 85000 750000 475000 46750 14.29 121465 106785 42714 64071 100536 0.909091 91396.36 2 85000 750000 475000 37400 24.49 208165 29435 11774 17661 140826 0.826446 116385.1 3 85000 750000 475000 28050 17.49 148665 98285 39314 58971 122636 0.751315 92138.24 4 85000 750000 475000 18700 12.49 106165 150135 60054 90081 111246 0.683013 75982.51 5 85000 750000 475000 9350 8.93 75905 189745 75898 113847 104752 0.620921 65042.75 6 750000 475000 8.92 75820 199180 79672 119508 195328 0.564474 110257.6 7 750000 475000 8.93 75905 199095 79638 119457 195362 0.513158 100251.6 8 750000 475000 4.46 37910 237090 94836 142254 180164 0.466507 84047.84 Present Worth after tax 310502 Loan Repayment schedule Year Opening Pricipal Outstanding Principal Repayment Interest Payment Closing Principal Outstanding Total cash outflow 0 425000 1 425000 85000 46750 340000 131750 2 340000 85000 37400 255000 122400 3 255000 85000 28050 170000 113050 4 170000 85000 18700 85000 103700 5 85000 85000 9350 0 94350 We appreciate the rating of our answers Thank You

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