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The PARC Co. Inc. asked you to determine some of the after-tax cash flows (ATCF) for...

The PARC Co. Inc. asked you to determine some of the after-tax cash flows (ATCF) for equipment used for research and development that is being considered. PARC expects the equipment to require the purchase of $190,000 worth of capital equipment (first cost) and to operate for five years. The capital equipment will have a resale value of $55,000 at the end of the 5th year. PARC plans to use the sum-of-years’-digits depreciation method for income tax calculations. The income tax rate is 35%, and PARC uses an after-tax MARR of 10%. The equipment results in PARC's before-tax income of $40,000 each year. Answer the following questions.

(a) Show before-tax cash flows (BTCF) from n=0 to n=5.

(b) Calculate depreciation charges.

(c) Determine taxable incomes.

(d) Compute income taxes.

(e) Show after-tax cash flows (ATCF).

(f) Determine both the after-tax NPW and after-tax rate of return for this investment.

(g) Indicate if it is worth investing on this equipment.

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Answer #1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

Hope this will help, please do comment if you need any further explanation. Your feedback would be appreciated.

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