Consider following condition for previous question: The investor takes $200,000

Question

Consider following condition for previous question: The investor takes $200,000 loan (at time zero) to purchase the machine at 8% interest rate. Loan has to be repaid by constant annual payments from year 1 to year 5 (5 payments). Assume 40% tax and minimum rate of return 10%. Calculate interest and principle for the payments, BTCF, ATCF, NPV and IRR for this investment

AND PREVIOUS QUESTION IS:

$400,000 capital cost required for purchasing a machine (at time zero) that can generate revenue of $180,000 with operating cost of $35,000 for five years (from year 1 to year 5). The capital cost is depreciable over 6 years (from year 0 to year 5) based on MACRS 5-year life depreciation with the half year convention (table A-1 at IRS). The salvage value will be zero and working capital $50,000. Please calculate NPV and ROR for this project considering the minimum rate of return 12% and 38% income tax.

Explanation / Answer

Year Interest Repayment Costs Depreciation Total Costs Revenue BTCF Tax ATCF MARR Present Value NPV 0 200000 200000 -200000 -200000 10% -200000 -$51,283.67 1 16000 40000 7000 80000 143000 180000 37000 40% 22200 10% 20181.82 2 12800 40000 7000 128000 187800 180000 -7800 40% -7800 10% -6446.28 3 9600 40000 7000 7680 64280 180000 115720 40% 69432 10% 52165.29 4 6400 40000 7000 46080 99480 180000 80520 40% 48312 10% 32997.75 5 3200 40000 7000 46080 96280 230000 133720 40% 80232 10% 49817.76

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