An asset with a 5‐year MACRS* life will be purchased for $10,500. It will produce net annual benefits (i.e., revenues) o...
An asset with a 5‐year MACRS* life will be purchased for $10,500. It will produce net annual
benefits (i.e., revenues) of $2000/year for 6 years, after which time it will have a net salvage value of zero
and will be retired. The company’s total tax rate is 34% and they use an ieff (MARR) of 11%. Use these to
construct a table in Excel showing the annual discounted after tax cash flows (CF). Please calculate discrete
and cumulative CF for each year requested.
Homework Answers
| Year | Initial cost | Revenue after tax | Tax shield-Depreciation | Net CF | Cumulative CF | Discounted CF | Cumulative DCF |
| 0 | -10500 | -10500 | -10500 | -10500.00 | -10500 | ||
| 1 | 1320 | 714.00 | 2034.00 | -8466.00 | 1832.43 | -8667.57 | |
| 2 | 1320 | 1142.40 | 2462.40 | -6003.60 | 1998.54 | -6669.03 | |
| 3 | 1320 | 685.44 | 2005.44 | -3998.16 | 1466.36 | -5202.67 | |
| 4 | 1320 | 411.26 | 1731.26 | -2266.90 | 1140.44 | -4062.23 | |
| 5 | 1320 | 411.26 | 1731.26 | -535.63 | 1027.42 | -3034.81 | |
| 6 | 1320 | 205.63 | 1525.63 | 990.00 | 815.67 | -2219.14 |
Note:Assuming the net benefits are before tax.
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