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2. Suppose investment for a project takes three years and it will operate for six years....
2. Suppose investment for a project takes three years and it will operate for six years....
2. Suppose investment for a project takes three years and it will operate for six years. The discount rate and interest rate is 10%, and the inflation rate is zero. 1,000 5,000 5,000 year investment cost loan net benefits 4.000 4.000 4.000 4.000 4.000 4.000 a) Calculate the accrued capital cost. b) Calculate the interest during construction (or capitalized interest) if 20% of the invest- ment in each year is financed with borrowing. c) With straight line depreciation over six...
1. Consider a neo-classical investment model with depreciable capital and a corporate income tax ...
1. Consider a neo-classical investment model with depreciable capital and a corporate income tax system where u is the corporate tax rate, oa is the tax depreciation (CCA) rate, and k is the investment tax credit (ITC) rate. The share of investment financed by debt is B, the economic depreciation rate is 6, the interest rate on debt is i, the required rate of return on equity is ρ, and the price of a unit of output and capital are...
Assume the following for a firm that will operate for only three years. Year Zero: Capital...
Assume the following for a firm that will operate for only three years. Year Zero: Capital Investment = $4M and increase in NWC = $0.2M; Years 1-3: NI = $3M, Depreciation = $0.1M, Interest expense = $0.1M; Year 3: Recovery of earlier increase in NWC (i.e., decrease NWC by $0.2M), and in addition Cash Flow from Salvage = $3M. Suppose the tax rate is 30% for the firm. What is the IRR based on the FCFs for this firm in...
10) You buy a machine now for $10,000. The machine can be depreciated using DDB depreciation with 5 years useful life and $2,000 salvage value. Three years later you sell the machine for $1,000....
10) You buy a machine now for $10,000. The machine can be depreciated using DDB depreciation with 5 years useful life and $2,000 salvage value. Three years later you sell the machine for $1,000. The annual net benefit is $8000. The inflation rate is 5% per year. The acceptable real after-tax rate of return after taking inflation into consideration is 10%. Combined incremental tax rate is 50%. Calculate PW of this investment a) $4102 b) $3654 c) $3181 d) $2706...
J Approximately what interest rate is needed to double an investment over six years? A) 17...
J Approximately what interest rate is needed to double an investment over six years? A) 17 percent B) 100 percentC) 12 percent D) 6 percent 9) Determine the in Determine the interest rate earned on a $1,500 deposit when $1,680 is paid back in one year. 9) A) 0.89 percent C) 89.00 percent B) 12.00 percent D) 1.12 percent 10) Consider a $1.000 deposit earning 7 percent interest per year for four years. How much total interest is earned on...
1. Consider a neo-classical investment model with depreciable capital and a corporate income tax ...
1. Consider a neo-classical investment model with depreciable capital and a corporate income tax system where is the corporate tax rate, α is the tax depreciation (CCA) rate, and k is the investment tax credit (ITC) rate. The share of investment financed by debt is B, the economic depreciation rate is 6, the interest rate on debt is i, the required rate of return on equity is p, and the price of a unit of output and capital are both...
1. Consider a neo-classical investment model with depreciable capital and a corporate incorne tax...
1. Consider a neo-classical investment model with depreciable capital and a corporate incorne tax system where u is the corporate tax rate, α is the tax depreciation (CCA) rate, and k is the investment tax credit (ITC) rate. The share of investment financed by debt is β, the economic depreciation rate is δ, the interest rate on debt is i, the required rate of return on equity is ρ, and the price of a unit of output and capital are...
Question 2: Evaluating investment projects You are planning to invest $40,000 in research & development (R&D)....
Question 2: Evaluating investment projects You are planning to invest $40,000 in research & development (R&D). This investment will generate cost savings of $28,000 in year 1 and $20,000 in year 2. After 2 years, the salvage value is zero. The cost of capital is 25% a year. a) Compute the net present value. NPV = $ Should you invest? YES NO b) Following a government stimulus program, the cost of capital decreased to 10% a year. Compute the net...
Question 2: Evaluating investment projects You are planning to invest $35,000 in research & development (R&D)....
Question 2: Evaluating investment projects You are planning to invest $35,000 in research & development (R&D). This investment will generate cost savings of $24,500 in year 1 and $17,500 in year 2. After 2 years, the salvage value is zero. The cost of capital is 25% a year. a) Compute the net present value. NPV = $ Should you invest? YES O NO b) Following a government stimulus program, the cost of capital decreased to 10% a year. Compute the...
Problem 10.16 You are graduating in two years. You want to invest your current savings of...
Problem 10.16
You are graduating in two years. You want to invest your current
savings of $6,100 in bonds and use the proceeds to purchase a new
car when you graduate and start to work. You can invest the money
in either bond A, a two-year bond with a 3.23 percent annual
interest rate, or bond B, an inflation-indexed two-year bond paying
1.03 percent real interest above the inflation rate (assume this
bond makes annual interest payments). The inflation rate...
2. Suppose investment for a project takes three years and it will operate for six years. The discount rate and interest rate is 10%, and the inflation rate is zero. 1,000 5,000 5,000 year investment cost loan net benefits 4.000 4.000 4.000 4.000 4.000 4.000 a) Calculate the accrued capital cost. b) Calculate the interest during construction (or capitalized interest) if 20% of the invest- ment in each year is financed with borrowing. c) With straight line depreciation over six...
1. Consider a neo-classical investment model with depreciable capital and a corporate income tax system where u is the corporate tax rate, oa is the tax depreciation (CCA) rate, and k is the investment tax credit (ITC) rate. The share of investment financed by debt is B, the economic depreciation rate is 6, the interest rate on debt is i, the required rate of return on equity is ρ, and the price of a unit of output and capital are...
10) You buy a machine now for $10,000. The machine can be depreciated using DDB depreciation with 5 years useful life and $2,000 salvage value. Three years later you sell the machine for $1,000. The annual net benefit is $8000. The inflation rate is 5% per year. The acceptable real after-tax rate of return after taking inflation into consideration is 10%. Combined incremental tax rate is 50%. Calculate PW of this investment a) $4102 b) $3654 c) $3181 d) $2706...
J Approximately what interest rate is needed to double an investment over six years? A) 17 percent B) 100 percentC) 12 percent D) 6 percent 9) Determine the in Determine the interest rate earned on a $1,500 deposit when $1,680 is paid back in one year. 9) A) 0.89 percent C) 89.00 percent B) 12.00 percent D) 1.12 percent 10) Consider a $1.000 deposit earning 7 percent interest per year for four years. How much total interest is earned on...
1. Consider a neo-classical investment model with depreciable capital and a corporate income tax system where is the corporate tax rate, α is the tax depreciation (CCA) rate, and k is the investment tax credit (ITC) rate. The share of investment financed by debt is B, the economic depreciation rate is 6, the interest rate on debt is i, the required rate of return on equity is p, and the price of a unit of output and capital are both...
1. Consider a neo-classical investment model with depreciable capital and a corporate incorne tax system where u is the corporate tax rate, α is the tax depreciation (CCA) rate, and k is the investment tax credit (ITC) rate. The share of investment financed by debt is β, the economic depreciation rate is δ, the interest rate on debt is i, the required rate of return on equity is ρ, and the price of a unit of output and capital are...
Question 2: Evaluating investment projects You are planning to invest $40,000 in research & development (R&D). This investment will generate cost savings of $28,000 in year 1 and $20,000 in year 2. After 2 years, the salvage value is zero. The cost of capital is 25% a year. a) Compute the net present value. NPV = $ Should you invest? YES NO b) Following a government stimulus program, the cost of capital decreased to 10% a year. Compute the net...
Question 2: Evaluating investment projects You are planning to invest $35,000 in research & development (R&D). This investment will generate cost savings of $24,500 in year 1 and $17,500 in year 2. After 2 years, the salvage value is zero. The cost of capital is 25% a year. a) Compute the net present value. NPV = $ Should you invest? YES O NO b) Following a government stimulus program, the cost of capital decreased to 10% a year. Compute the...
Problem 10.16
You are graduating in two years. You want to invest your current
savings of $6,100 in bonds and use the proceeds to purchase a new
car when you graduate and start to work. You can invest the money
in either bond A, a two-year bond with a 3.23 percent annual
interest rate, or bond B, an inflation-indexed two-year bond paying
1.03 percent real interest above the inflation rate (assume this
bond makes annual interest payments). The inflation rate...
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