Gentry Machines. Inc .. has just received a special job order from one of itsclients.The following financial data on the order have been collected:1. This two-year project requires the purchase of a special-purpose piece ofequipment for $55,000. The equipment falls into the MACRS five-year class.2. The machine will be sold at the end of two years for $27,000 (today's dollars).3. The project will bring in an additional annual revenue of $114,000 (actualdollars), but it is expected to incur an additional annual operating cost of$53,800 (today's dollars). !ill To purchase the equipment, the firm expects to borrow $50,000 at 10% over a two-year period (equal annual payments of $28,810 in actual dollars). The remaining $5,000 will be taken from the firm's retained earnings.4. The firm expects a general inflation of 5% per year during the project period. The firm's marginal tax rate is 40%, and its market interest rate is 18%.(a) Compute the after-tax cash flows in actual dollars.(b) Whal is the equivalent present worth of this amount at time 0?
Gentry Machines. Inc .. has just received a special job order from one of its
clients.
The following financial data on the order have been collected:
1. This two-year project requires the purchase of a special-purpose piece of
equipment for $55,000. The equipment falls into the MACRS five-year class.
2. The machine will be sold at the end of two years for $27,000 (today's dollars).
3. The project will bring in an additional annual revenue of $114,000 (actual
dollars), but it is expected to incur an additional annual operating cost of
$53,800 (today's dollars). !ill To purchase the equipment, the firm expects to borrow $50,000 at 10% over a two-year period (equal annual payments of $28,810 in actual dollars). The remaining $5,000 will be taken from the firm's
4. The firm expects a general inflation of 5% per year during the project period. The firm's marginal tax rate is 40%, and its market interest rate is 18%.
(a) Compute the after-tax
(b) Whal is the equivalent present worth of this amount at time 0?
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