4. A large corporation subjected to 21% marginal tax is investing 200,000 in a new income...

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4. A large corporation subjected to 21% marginal tax isinvesting 200,000 in a new income producing asset that isdepreciated on a MACRS 5 year schedule. The asset was paid forcompletely when purchased in the first quarter of the first year ofoperation but for analysis purposes the cash flow of purchase is inperiod 0. The expected revenue and costs by year are given below.When retired, the asset will have no value.
Year
1
2
3
4
5
6
Direct Revenue
90,000
190,000
210,000
180,000
130,000
80,000
Direct and Allocated Cost
35,000
85,000
90,000
85,000
65,000
35,000
Prepare a net cash flow statement / exhibit for all 6 years ofthe new asset.
a. What is the net cash flow in year1?
b. What is the net cash flow in year6?
c. What is the PW of the net cash flowapplying an interest rate of 12.0%? Place the purchase at year 0with all other cash flows at the end of the respectiveyear.

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4.0 Ratings (741 Votes)

a Net Cash flow in year 1 51850b Net Cash flow in year 6 3796920c NPV 9824243WORKINGSThe Operating cash See Answer

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4. A large corporation subjected to 21% marginal tax isinvesting 200,000 in a new income producing asset that isdepreciated on a MACRS 5 year schedule. The asset was paid forcompletely when purchased in the first quarter of the first year ofoperation but for analysis purposes the cash flow of purchase is inperiod 0. The expected revenue and costs by year are given below.When retired, the asset will have no value.Year123456Direct Revenue90,000190,000210,000180,000130,00080,000Direct and Allocated Cost35,00085,00090,00085,00065,00035,000Prepare a net cash flow statement / exhibit for all 6 years ofthe new asset.a. What is the net cash flow in year1? b. What is the net cash flow in year6? c. What is the PW of the net cash flowapplying an interest rate of 12.0%? Place the purchase at year 0with all other cash flows at the end of the respectiveyear.

Year	1	2	3	4	5	6
Direct Revenue	90,000	190,000	210,000	180,000	130,000	80,000
Direct and Allocated Cost	35,000	85,000	90,000	85,000	65,000	35,000