You are reviewing some material that deals with investment analysis, preparing for your first day on the job at Franklin Enterprises. Consider the cash flows that follow.
1. The immediate payment required to purchase a $600,000 milling machine.
2. Straight-line depreciation of $20,000 in year 2 of a long-term investment.
3. Annual savings in cash operating costs of $50,000 over the next eight years.
4. Sale of a machine for $35,000 at the end of its six-year service life. The machine has a book value of $25,000.
5. A $6,000 equipment overhaul in year 5 that is fully deductible for income tax purposes.
Required:
Calculate the discounted cash flow that is appropriate for each of the preceding items. Assume a 10% after-tax hurdle rate and a 30% income tax rate, and round to the nearest dollar.

Question

Quizplus · Accepted Answer

The Answer of You are reviewing some material that deals with investment analysis, preparing for your first day on the job at Franklin Enterprises. Consider the cash flows that follow.
1. The immediate payment required to purchase a $600,000 milling machine.
2. Straight-line depreciation of $20,000 in year 2 of a long-term investment.
3. Annual savings in cash operating costs of $50,000 over the next eight years.
4. Sale of a machine for $35,000 at the end of its six-year service life. The machine has a book value of $25,000.
5. A $6,000 equipment overhaul in year 5 that is fully deductible for income tax purposes.
Required:
Calculate the discounted cash flow that is appropriate for each of the preceding items. Assume a 10% after-tax hurdle rate and a 30% income tax rate, and round to the nearest dollar.

You Are Reviewing Some Material That Deals with Investment Analysis