Amelia Corporation has the following information about the purchase of a new piece of equipment: Cash
Question:
Amelia Corporation has the following information about the purchase of a new piece of equipment:
Cash revenues less cash expenses $175,000 per year
Cost of equipment $490,000
Salvage value at the end of the 6th year $70,000
Increase in working capital requirements $125,000
Tax rate 30 percent
Life 6 years
The cost of capital is 11 percent.
Required:
Calculate the following assuming straight-line depreciation:
i. Calculate the after-tax net income for each of the six years.
ii. Calculate the after-tax cash flows for each of the six years.
iii. Calculate the after-tax payback period.
iv. Calculate the accrual accounting rate of return on original investment for each of the six years.
v. Calculate the net present value (NPV).
vi. Calculate the internal rate of return (IRR).
b. Calculate the following assuming that depreciation expense is $120,000, $100,000, $80,000, $60,000, $40,000 and $20,000 for years 1 through 6, respectively:
i. Calculate the after-tax cash flows for each of the six years.
ii. Calculate the after-tax payback period.
iii. Calculate the net present value (NPV).
iv. Calculate the internal rate of return (IRR).
Financial Reporting Financial Statement Analysis and Valuation a strategic perspective
ISBN: 978-1337614689
9th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw