The PARC Co. Inc. asked you to determine some of the after-tax cash flows (ATCF) for equipment
Question:
The PARC Co. Inc. asked you to determine some of the after-tax cash flows (ATCF) for equipment used for research and development that is being considered. PARC expects the equipment to require the purchase of $190,000 worth of capital equipment (first cost) and to operate for five years. The capital equipment will have a resale value of $55,000 at the end of the 5th year. PARC plans to use the sum-of-years’-digits depreciation method for income tax calculations. The income tax rate is 35%, and PARC uses an after-tax MARR of 10%. The equipment results in PARC's before-tax income of $40,000 each year. Answer the following questions.
(a) Show before-tax cash flows (BTCF) from n=0 to n=5.
(b) Calculate depreciation charges.
(c) Determine taxable incomes.
(d) Compute income taxes.
(e) Show after-tax cash flows (ATCF).
(f) Determine both the after-tax NPW and after-tax rate of return for this investment.
(g) Indicate if it is worth investing on this equipment.
Intermediate Accounting Reporting and Analysis
ISBN: 978-1111822361
1st edition
Authors: James M. Wahlen, Jefferson P. Jones, Donald Pagach