Darren Corporation has the following information about the purchase of a new piece of equipment: Cash revenues
Question:
Darren Corporation has the following information about the purchase of a new piece of equipment:
Cash revenues less cash expenses $320,000 per year
Cost of equipment $900,000
Salvage value at the end of the 9th year $90,000
Increase in working capital requirements $160,000
Tax rate 40 percent
Life 9 years
The cost of capital is 14 percent.
Required:
- Calculate the following assuming straight-line depreciation:
i. Calculate the after-tax net income for each of the nine years.
ii. Calculate the after-tax cash flows for each of the nine years.
iii. Calculate the after-tax payback period.
iv. Calculate the accrual accounting rate of return on original investment for each of the nine 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 $180,000, $160,000, $140,000, $120,000, $100,000, $80,000, $60,000, $40,000 and $20,000 for years 1 through 9, respectively:
i. Calculate the after-tax cash flows for each of the nine years.
ii. Calculate the after-tax payback period.
iii. Calculate the net present value (NPV).
iv. Calculate the internal rate of return (IRR).
Engineering Economy
ISBN: 978-0133439274
16th edition
Authors: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling