2.A firm has the opportunity to buy a machine which lasts five years, costs $900 and...

 

 

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2.A firm has the opportunity to buy a machine which lasts five years, costs $900 and saves $ 200 worth of labor each year.Assume that the firm's after tax cost of capital is 10%,the firm uses straight line depreciation and it finances the purchase with cash.Five year pro-forma income statements before and after purchase of the machine are given below: Before: Revenue Variable costs Fixed costs Net operating income Interest expense EBT Taxes (50%) Net income After: Revenue Variable costs Fixed costs Net operating income Interest expense 1 $ 1000 2 1000 500 500 300 300 200 200 200 100 100 200 100 100 1000 1000 300 300 480 480 220 220 YEARS 3 1000 500 300 200 200 100 100 1000 300 480 220 4 1000 500 300 200 200 100 100 5 1000 500 300 200 200 100 100 1000 1000 300 300 480 480 220 220 2.A firm has the opportunity to buy a machine which lasts five years, costs $900 and saves $ 200 worth of labor each year.Assume that the firm's after tax cost of capital is 10%,the firm uses straight line depreciation and it finances the purchase with cash.Five year pro-forma income statements before and after purchase of the machine are given below: Before: Revenue Variable costs Fixed costs Net operating income Interest expense EBT Taxes (50%) Net income After: Revenue Variable costs Fixed costs Net operating income Interest expense 1 $ 1000 2 1000 500 500 300 300 200 200 200 100 100 200 100 100 1000 1000 300 300 480 480 220 220 YEARS 3 1000 500 300 200 200 100 100 1000 300 480 220 4 1000 500 300 200 200 100 100 5 1000 500 300 200 200 100 100 1000 1000 300 300 480 480 220 220

Answer rating: 100% (QA)

ANSWER aThe net present value of the investment can be calculated using the for... View the full answer