Investment $300,000 Leverage Factor 3 Debt 4 Interest Rate s Tax Rate 6 After Ta

Question

Investment $300,000 Leverage Factor 3 Debt 4 Interest Rate s Tax Rate 6 After Tax Marr 040 $40,000 12% sooooo soooo soooo ss0,000 10,000) (50,000) (5.000) ($10.00c) (520.000) 9 Income 10 Cost 11 Interest 12 Depreciation 13 Taxable Income 14 Tax 15 Net Profit 16 Depreciation 17 Principal Payment 18 Equity Investment 19 Cash Flow 20 Debt Balance S800) $20,000) (20.000) (520,000) (520000) ($20.000) ($6.400) (,720) (57, (7,360) ($7,580) $9,600 $10,080 $10,560 $11000 $11,520 $20,000 $20,000 $20,000 $20,000 $20,000 (56,400) 17,600$8,400 $19,200 $60,000 560,000) $21,600 $22,00 $22,560 $23,040 $23,520 50 40,000 $32,000 $24,000 $15,000$8,000 21 PV e MARR ($60,000.00) $19,285.71 $17,502.04 $16,057.76 $14,642.34 $13,345.88 22 After Tax IRR 23 After Tax NPV= 25.08% $20,933.73 #8 and #9 refer to the above table. 8,-/show the work using financial notations (P/F.%, n) to calculate the value in Row 23 Column C Show the logic first and then replace the logic with values from the interest tables. 92 show the work to calculate the values i, the cell number identified below. (Please use actual numerical values instead of cell values ie. Do not use row or columns numbers in your response) a. Row 11 Column D: b. Row 12 Column D: c. Row 13 Column D: d. Row 14 Column D: e. Row 15 Column D: f. Row 17 Column D: 10. Given a cash flow table as below, determine the NPW if MARR is 10%. ear Cash Flow, S+10K IK K SK 12K ANSWER Page 2 c

Explanation / Answer

8. Row 23 Column C = NPV

NPV = (P/F,12%,0)*-60,000 + (P/F,12%,1)*21,600 + (P/F,12%,2)*22,080 + (P/F,12%,3)*22,560 + (P/F,12%,4)*23,040 + (P/F,12%,5)*23,520

= -60,000/1.12^0 + 21,600/1.12^1 + 22,080/1.12^2 + 22,560/1.12^3 + 23,040/1.12^4 + 23,520/1.12^5

(The logic is that the cash flows in each year are getting discounted to year 0 using a discount factor of 12%)

= $20,933.73

9. a. This amount = interest rate*debt = 10% of 40,000 = $4,000. This is expressed as a negative number as it is a cash expense and hence is deducted.

b. Row 12 column D is for depreciation and the amount is fixed at $20,000 each year. Thus a straight line method is being used and fomula = amount of investment/no. of years = 100,000/5 = $20,000 each year

c. Row 13 column D = taxable income = income - costs - interest - depreciation

= 50,000 - 10,000 - 4,000 - 20,000

= 16,000

d. Tax = tax rate*taxable income = 40%*16,000 = 6,400

e. Net profit = taxable income - tax = 16000-6400 = 9,600

f. Principal payment = debt/5 years = 40,000/5 = 8,000 per year

10.

NPV = -10 + -1/1.10^1 + 4/1.1^2 + 8/1.1^3 + 12/1.1^4

= -10-0.91+3.31+6.01+8.20

= 6.60K

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