1) You purchased a machine for $500,000 (installed), and you depreciated it usin
ID: 2735354 • Letter: 1
Question
1) You purchased a machine for $500,000 (installed), and you depreciated it using a 5 year MACRS. This machine generates $200,000 in annual revenue. In year 4, you sold the machine for $250,000. You received a loan for $400,000 on a 5 year loan at 5% (note, you must pay the remaining balance of this loan at the end of year 4 from the proceeds of the sale). In addition, you invested $80,000 in working capital initially. Your company is in a 35% tax bracket. Show the end of year cash flows for this project (attach the table) Yr0?________________ Yr1?________________ Yr2?________________ Yr3?________________ Yr4?________________
Explanation / Answer
Loan Yearly Installment = 400000 (1 + 0.05)5 0.05 / (1 + 0.05)5 -1 = $92390
For simple calculation, we take yearly interest = 92390 - 80000 = $12390, Yearly principle $80000 and installment of $92390
Yearly Cash flow =
Year Calculations Cash Flow $ 0 Cashdown payment $100000 + Working Capital 80000 - 180000 1 (Rev. $200000-Int. 12390- Dep. 100000) 0.65 + Dep. 100000 - Loan Installment 92390 64557 2 (Rev. $200000-Int. 12390- Dep. 128000) 0.65 + Dep. 128000 - Loan Installment 92390 74356 3 (Rev. $200000-Int. 12390- Dep. 52224) 0.65 + Dep. 52224 - Loan Installment 92390 47835 4 (Rev. $200000-Int. 12390- Dep. 25318) 0.65 + Dep. 25318 - Loan Installment 92390 - Remaining loan principle 80000 + salvage value 250000 + working capital 80000 288418Related Questions
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