13. A corporation with $3 million in annual taxable income is considering the fo

Question

13. A corporation with $3 million in annual taxable income is considering the following investment. Show all work in the space provided. Use the back of this sheet if necessary. State income taxes are 6%. Find the values of the net present worth, annual worth and future worth before taxes for a MARR of 12%. Place your answers in the space here: A. Before Taxes Cash flow Year Cash Flow 0 1-10 5,000 11-20 6,000 -30,000 AW Find the rate of return before and after taxes using linear interpolation. Use straight line depreciation and a $2000 salvage value that would be realized at the end of the 20th year. Place your answers here: B. Before Taxes IRR After Taxes IRR =

Explanation / Answer

A. After tax cash flow from year 1-10 = 5000*(1-0.06) = 4700

After tax cash flow from year 11-20 = 6,000*(1-0.06) = 5,640

Net Present Worth (NPW)= 4700/1.12 + 4700/1.12^2 + 4700/1.12^3 +.....+4700/1.12^10 + 5640/1.12^11 +5640/1.12^12 +.....+5640/1.12^20 = 36,816.45

Annual Worth = r*NPV/(1 - (1+r)^-n) = 0.12*36,816.45 / (1-(1+0.12)^-20) = $4,928.94

Future Worth = 4700*1.12^19 + 4700*1.12^18 + .... 4700*1.12^10 +5640*1.12^9 + .....+5640*1.12^1 +5640 = 355,142.29

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