Abbott placed into service a flexible manufacturing cell costing $840,000 early this year. They financed...

60.1K

Verified Solution

Question

Finance

image

image

Abbott placed into service a flexible manufacturing cell costing $840,000 early this year. They financed $425,000 of the initial cost of the cell at 11% per year over 5 years. Gross income due to the cell is expected to be $750,000 with deductible expenses of $470,000. Depreciation is based on MACRS-GDS, and the cell is in the 7- year property class. Abbott's marginal tax rate is 40%, MARR is 11% after taxes, and they expect to keep the cell for 8 years. Determine the PW, FW, AW, IRR, and ERR for the investment if: a. The loan is paid back using Method 1 (interest only at the end of each year of the loan, plus principal at the end of the last year) b. The loan is paid back using Method 2 (equal annual principal payments plus interest on the unpaid loan balance) c. The loan is paid back using Method 3 (equal annual principal plus interest payments during each year of the loan) d. The loan is paid back using Method 4 (principal plus interest is paid at the end of the loan period) Pw FW AW IRR ERR a. Method 1 b. Method 2 0% c. Method 3 d. Method 4 Round your answers to 2 decimal places. Do not round intermediate computations. Present IRR and ERR in percentage format. Tolerance is +/- 10.00 and +/-0.02 Click here to access the TVM Factor Table Calculator Click here to access the MACRS-GDS table Abbott placed into service a flexible manufacturing cell costing $840,000 early this year. They financed $425,000 of the initial cost of the cell at 11% per year over 5 years. Gross income due to the cell is expected to be $750,000 with deductible expenses of $470,000. Depreciation is based on MACRS-GDS, and the cell is in the 7- year property class. Abbott's marginal tax rate is 40%, MARR is 11% after taxes, and they expect to keep the cell for 8 years. Determine the PW, FW, AW, IRR, and ERR for the investment if: a. The loan is paid back using Method 1 (interest only at the end of each year of the loan, plus principal at the end of the last year) b. The loan is paid back using Method 2 (equal annual principal payments plus interest on the unpaid loan balance) c. The loan is paid back using Method 3 (equal annual principal plus interest payments during each year of the loan) d. The loan is paid back using Method 4 (principal plus interest is paid at the end of the loan period) Pw FW AW IRR ERR a. Method 1 b. Method 2 0% c. Method 3 d. Method 4 Round your answers to 2 decimal places. Do not round intermediate computations. Present IRR and ERR in percentage format. Tolerance is +/- 10.00 and +/-0.02 Click here to access the TVM Factor Table Calculator Click here to access the MACRS-GDS table

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students