Custom Plastics plans to purchase $4.5 million of equipment in the not-too-distant future.The equipment will be depreciated by the optional straight-line method over the MACRS life of 5 years.Custom is subject to a 30% income tax rate.
The company's accountant is about to perform a net-present-value analysis,assuming a 10% after-tax hurdle rate.
Required:
A.Determine the discounted cash flows that would be reflected in the analysis in year 0 and year 1.
A.Year 0 acquisition cost: $(4,500,000)* 1.0 = $(4,500,000)
For taxes,you must ignore salvage value and use the half-year convention.
Year 1 depreciation tax shield: ($4,500,000 / 5)x 0.5 = $450,000 x 0.3 = $135,000 x .909 = $122,715.
B.

B.Determine the discounted cash flow that would be reflected in the analysis in year 6,assuming that Custom sells the equipment for $450,000,

Question

Custom Plastics plans to purchase $4.5 million of equipment in the not-too-distant future.The equipment will be depreciated by the optional straight-line method over the MACRS life of 5 years.Custom is subject to a 30% income tax rate.
The company's accountant is about to perform a net-present-value analysis,assuming a 10% after-tax hurdle rate.
Required:
A.Determine the discounted cash flows that would be reflected in the analysis in year 0 and year 1.
A.Year 0 acquisition cost: $(4,500,000)* 1.0 = $(4,500,000)
For taxes,you must ignore salvage value and use the half-year convention.
Year 1 depreciation tax shield: ($4,500,000 / 5)x 0.5 = $450,000 x 0.3 = $135,000 x .909 = $122,715.
B.
  
B.Determine the discounted cash flow that would be reflected in the analysis in year 6,assuming that Custom sells the equipment for $450,000,

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The Answer of Custom Plastics plans to purchase $4.5 million of equipment in the not-too-distant future.The equipment will be depreciated by the optional straight-line method over the MACRS life of 5 years.Custom is subject to a 30% income tax rate.
The company's accountant is about to perform a net-present-value analysis,assuming a 10% after-tax hurdle rate.
Required:
A.Determine the discounted cash flows that would be reflected in the analysis in year 0 and year 1.
A.Year 0 acquisition cost: $(4,500,000)* 1.0 = $(4,500,000)
For taxes,you must ignore salvage value and use the half-year convention.
Year 1 depreciation tax shield: ($4,500,000 / 5)x 0.5 = $450,000 x 0.3 = $135,000 x .909 = $122,715.
B.
  
B.Determine the discounted cash flow that would be reflected in the analysis in year 6,assuming that Custom sells the equipment for $450,000,

Custom Plastics Plans to Purchase $4