5. \"A firm is considering purchasing a new milling machine and has collected th

Question

5. "A firm is considering purchasing a new milling machine and has collected the following information for its income statement and cash flow statement. However, this income statement was calculated as if there is no inflation! All dollars are expressed in constant (year-0) dollars. Recalculate the income and cash flow statement by assuming there is a general (average) inflation of 4.1% applied to revenue, O&M, and salvage value.
- The firm will pay back the loan in 2 years, and the annual loan payment is $16,838.
- The tax rate is 34%.
- The revenue for year 1 is $48,000 and $40,000 for year 2.
- O&M for year 1 is $12,000 and $16,400 for year 2.
- The interest paid on the debt is $2322 for year 1 and $1204 for year 2.
- The taxable income is $24,104 for year 1 and $14,192 for year 2.
- The income taxes are $8,195 for year 1 and $4,825 for year 2.
- The milling machine costs $67,000.
- The salvage value at the end of year 2 is $48,000.
Calculate the IRR of the cash flow based on actual dollars. Express your answer as a percentage between 0 and 100.
You should calculate the depreciation based on the information given in the problem, but do not refer to the MACRS table. You will also need to calculate the amount that is borrowed and that goes to the principal on the debt in years 1 and 2."

6. Bank A pays 6.14% compounded annually.
Bank B pays 5.53% compounded quatarly.
Bank C pays 5.98% compounded continuously.
Enter the amount of money that the best option would return after 9 years.

Explanation / Answer

Capital inflow at the end of project SalvageValue             48,000 Add: Depreciation Charged             17,778             65,778 Less: Cost Price             67,000 Loss at the end of year on asset             (1,222) Tax Saving at 34%=1222*34%                   415 Total Inflow at the end of project 48000+415             48,415 Statement of Interest & Principal of the Loan Year 1             16,838 2322          14,516 2             16,838 1204          15,634 Year Capital/ Loan Inflow/ (Outflow) Annual Revenue Annual Expenses Interest on Loan Depreciation Annual Income Tax at 34% Net Cash Inflow Real Net Cash Inflow A B C L D=B-C-L-E E F=E*34% G=E+D-F-A K=G/(1.041)^n 0        (67,000)                     -             (67,000)                (67,000)                        1        (14,516)          48,000      12,000         2,322                 9,574            24,104         8,195             10,967                   10,535                        2        (15,634)          40,000      16,400         1,204                 8,204            14,192         4,825               1,937                     1,787                        2          48,415                -               48,415                   44,677                (10,001) IRR=0%, as Real cash inflow before applying discount factor is less than zero Note: As per Chegg policy We can answer one question, we you want the answer of another question please ask seperatly on chegg webstie

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