Question

MUNIS ONLINE HU... Sy i to u UK Student Portal Login er 12 Homework Assignment Saved Help Save & Ex Check my work mode : This shows what is correct or incorrect for the work you have completed so far. It does not indicate completion. Return to Bob Jensen Inc. purchased a $650,000 machine to manufacture specialty taps for electrical equipment. Jensen expects to sell all it can manufacture in the next 10 years. To encourage capital investments, the government has exempted taxes on profits from new investments. This legislation is to be in effect for the foreseeable future. The machine is expected to have a 10-year useful life with no salvage value. Jensen uses straight-line depreciation. Jensen uses a 10% discount rate in evaluating capital investments, the investment is subject to taxes, and the projected pretax operating cash inflows are as follows: Year Pretax Cash Inflow $ 65,000 80,000 120,000 200,000 240,000 300,000 270,000 240,000 120,000 80,000 10 Jensen has been paying 25% for combined federal state, and local income taxes, a rate that is not expected to change during the period of this investment. The firm uses straight-line depreciation. Assume, for simplicity, that MACRS depreciation rules do not apply. Required: < Prey 2 of 2 ! Next o search

Answer 1

Present Value Payback Period Year Present Value of Cash Inflows Cumulative 11 2 31 Net Present Value Cash Flow Present Value Year Pre tax Cash Depreciation after Profit after Cash Flow Flows DF @10% of Cash Tax after Tax Depreciation Inflows 65000 650000 0 65000 0.9091 5 9091.50 80000 65000 15000 11250 76250 0.8264 63013.00 120000 65000 55000 41250 106250 0.7513 79825.63 200000 65000 135000 101250 166250 0.6830 113548.75 240000 65000 175000 131250 196250 0.6209 121851.63 300000 65000 235000 176250 241250 0.5645 136185.63 270000 65000 205000 153750 218750 0.5132 112262.50 240000 65000 175000 131250 196250 0.4665 91550.63 9 120000 65000 55000 41250 106250 0.4241 4 5060.63 10 80000 65000 1500011250 7 6250 0.3855 29394.38 Total Present Value of Cash Inflows 851784.25 Less: Investment 650000.00 Net Present Value 201784 4 5 6 5 9091.50 59091.50 6 3013.00122104.50 79825.63 201930.13 113548.75 315478.88 121851.63 437330.50 136185.63 573516.13 112262.50 685778.63 9 1550.63 777329.25 4 5060.63 822389.88 2 9394.38 851784.25 1 8 9 10 Differential amount after year 6 -76483.87 (573516.13-650000) Present value in year 7 112262.5 (from above table) No. of months to recover differential amount 8.1755389 (76483.87*12/112262.5) Above converted in decimals 0.6808333 (8.17/12) Present Value Payback Period Present Value Payback Period 6.68 years (6+0.68)