This is the whole given here !!! Please do it or I will report it. 8. A machine

Question

This is the whole given here !!!

Please do it or I will report it.

8. A machine has been purchased for $30,000 with an estimated life and salvage of 10 years and S5000. Straight line depr will be used. The machine is expected to produce BTCF of $15,000, 17,300, and 19,150 for the next three years. The machine will be sold at the end of year 3 for its book value. . Inflation is expected to be 3.1%, 4.6%, and 2.7% for the next three years Calculate io (the real or constant S) after tax rate of return assuming this machine is sold at the end of year 3.

Explanation / Answer

If economic life is 10 years and salvage value at end is $5000. So yearly depreciation is $2500.

Before tax cashflows(BTCF): $15000, $17300, $19150.

Book value of machine = $30000 - 7500 = $22500

Present value of all 3 cash flows

Y1= $15000 / (1.031) = $14548

Y2 = $16041

Y3 = $17290.5

NPV of machine = Y1 + Y2 +Y3 - book value of machine

= $25379.5

Assuming tax rate of 30% = $25379.5(1-30%) = $17765.3

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