1. A machine was purchased 4 years ago for $28.000. It's estimated life was 7 years...
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1. A machine was purchased 4 years ago for $28.000. It's estimated life was 7 years with SO salvage. It's market value today is $35.000. It's now thought that it's salvage in 3 years will be $12.000. 5 MACRS depreciation is being used. BTCF last year was $26.000 and is fully inflation responsive. Inflation rates for next 3 years are expected to be 3% in year 1, 5% in year 2, and 4% in year 3. MACRS%: 20, 32, 19.2, 11.52, 11.52, 5.76. The tax rate is 40% on ordinary income and 20% on capital gains. A. The prospective inflation free IRR (io) for this machine if it is kept for 3 more years is? B. This machine is being considered for replacement. The challenger cost $40.000with an estimated life of 5 years and $0 salvage. 5 years depreciation will be used. Although for depreciation purposes the machine has #0 salvage. Plans call for selling the machine in 3 years for $30.000. BTCF will the same at the current machine. The IRR (io) on the incremental investment needed if the current machine is sold and the challenger is purchased is? C. Construct the income statement for the next year (the 5 year of the machine's life). 1. A machine was purchased 4 years ago for $28.000. It's estimated life was 7 years with SO salvage. It's market value today is $35.000. It's now thought that it's salvage in 3 years will be $12.000. 5 MACRS depreciation is being used. BTCF last year was $26.000 and is fully inflation responsive. Inflation rates for next 3 years are expected to be 3% in year 1, 5% in year 2, and 4% in year 3. MACRS%: 20, 32, 19.2, 11.52, 11.52, 5.76. The tax rate is 40% on ordinary income and 20% on capital gains. A. The prospective inflation free IRR (io) for this machine if it is kept for 3 more years is? B. This machine is being considered for replacement. The challenger cost $40.000with an estimated life of 5 years and $0 salvage. 5 years depreciation will be used. Although for depreciation purposes the machine has #0 salvage. Plans call for selling the machine in 3 years for $30.000. BTCF will the same at the current machine. The IRR (io) on the incremental investment needed if the current machine is sold and the challenger is purchased is? C. Construct the income statement for the next year (the 5 year of the machine's life).
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To answer the questions we need to perform some financial calculations Lets go step by step Given data Initial cost of the machine 28000 Estimated lif... View the full answer
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