Assume a potential capital investment has an initial cost of $275,000.00, an expected life of 5...

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Assume a potential capital investment has an initial cost of $275,000.00, an expected life of 5 years, and an expected salvage value of $55,000.00. Assume that in each of years 1 through 5 the project will generate a NET positive operating cash flow of $70,000.00. Assume a before tax discount rate (WCC) of 7%. Assume the relevant marginal tax rate for your business is 18%, and assume the business elects to use simple straight-line (slow) depreciation for tax purposes. Set up a spreadsheet table and calculate both the "before tax" NPV of this proposed investment, and the "after tax" NPV of this proposed investment. Be sure to use the appropriate "after tax discount rate in your after tax analysis. a. (3) What is pre-tax NPV? b. (1) What is your after-tax discount rate? c. (3) What is your after-tax NPV? d. (1) What is the total amount of Depreciation taken over the life of the project? e. (3) Now change your analysis, and take all of your total Depreciation in year 1, and no depreciation in any subsequent years (so the total remains the same, but all depreciation is taken in year 1). What is your new after-tax NPV? Assume a potential capital investment has an initial cost of $275,000.00, an expected life of 5 years, and an expected salvage value of $55,000.00. Assume that in each of years 1 through 5 the project will generate a NET positive operating cash flow of $70,000.00. Assume a before tax discount rate (WCC) of 7%. Assume the relevant marginal tax rate for your business is 18%, and assume the business elects to use simple straight-line (slow) depreciation for tax purposes. Set up a spreadsheet table and calculate both the "before tax" NPV of this proposed investment, and the "after tax" NPV of this proposed investment. Be sure to use the appropriate "after tax discount rate in your after tax analysis. a. (3) What is pre-tax NPV? b. (1) What is your after-tax discount rate? c. (3) What is your after-tax NPV? d. (1) What is the total amount of Depreciation taken over the life of the project? e. (3) Now change your analysis, and take all of your total Depreciation in year 1, and no depreciation in any subsequent years (so the total remains the same, but all depreciation is taken in year 1). What is your new after-tax NPV?

Answer rating: 100% (QA)

a Pretax NPV 13919 b Aftertax discount rate 7 1 18 5764 c Aftertax NPV 23171 d Total depreciation ta... View the full answer