Congratulations, you recently inherited a farm, and decided to purchase a new road-safe tractor unit for...

 

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Congratulations, you recently inherited a farm, and decided to purchase a new road-safe tractor unit for $98,000! You plan on keeping the tractor unit for the next six years, at which time you will sell it for its salvage value of $8,000. Over these six years, you expect annual revenues-less-expenses due to the new tractor to be $20,000 per year. Assuming an effective tax rate of 25% and a MARR of 7%, a) [30pt] Calculate the annual depreciation and book value of the tractor, for each of the six years, using the following methods: (assume nonMACRS SL method) SL DB (200%) GDS ii. iii. b) [8pt] Using the GDS depreciation calculated in part a), convert your annual BTCFs to ATCFS. c) [4pt] Using the ATCFS calculated in part b), create a cash flow diagram of this scenario. d) [8pt] Using the ATCFS calculated in part b), calculate the PW of this purchase. Is this a good investment? Congratulations, you recently inherited a farm, and decided to purchase a new road-safe tractor unit for $98,000! You plan on keeping the tractor unit for the next six years, at which time you will sell it for its salvage value of $8,000. Over these six years, you expect annual revenues-less-expenses due to the new tractor to be $20,000 per year. Assuming an effective tax rate of 25% and a MARR of 7%, a) [30pt] Calculate the annual depreciation and book value of the tractor, for each of the six years, using the following methods: (assume nonMACRS SL method) SL DB (200%) GDS ii. iii. b) [8pt] Using the GDS depreciation calculated in part a), convert your annual BTCFs to ATCFS. c) [4pt] Using the ATCFS calculated in part b), create a cash flow diagram of this scenario. d) [8pt] Using the ATCFS calculated in part b), calculate the PW of this purchase. Is this a good investment?

Answer rating: 100% (QA)

a Calculate the annual depreciation and book value of the tractor for each of the six years using the following methods SL assume nonMACRS SL method Year Depreciation Book Value 1 16800 81200 2 16800 ... View the full answer