A manufacturer plans to spend $3,700,000 on equipment. The equipment will be depreciated using the MACRS method with a 5-year recovery period. The manufacturer plans to keep the equipment indefinitely and uses a study period of 6 years for these types of purchases. Annual operating expenses are expected to be $50,000 in year 1 and increase by $70,000 each year. Gross income is expected to be $900,000 in year 1 and increase by $170,000 each year. A portion of the after-tax cash flow analysis is shown below. The manufacturer ’s combined marginal tax rate is 39%. Year GI OE CFBT Dt TI Taxes CFAT 0 −$3,700,000 1 $807,100 2 $1,041,260 3 $917,556 4 $1,410,000 $260,000 (a) $426,240 (b) (c) (d) 5 $928,734 6 $906,617 Round to nearest dollar. For Year 4, what is the cash flow before taxes, CFBT? $[cb] For Year 4, what is the taxable income, TI? $[ti] For Year 4, what is the amount of taxes, Taxes? $[x] For Year 4, what is the cash flow after taxes, CFAT? $[ca] What is the after-tax Rate of Return over the study period? [ror]%  (one decimal) If the company’s MARR is 14%, should they invest in this equipment, YES or NO? [in]

A medical diagnostic laboratory plans to spend $2,700,000 on equipment to provide pathology services. The equipment will be depreciated using the MACRS method and a 5-year recovery period. Gross income is expected to be $900,000 in year 1 and increase by $80,000 each year. Annual operating expenses are expected to be $50,000 in year 1 and increase by $50,000 each year. The company’s combined marginal tax rate is 40%. The company uses a study period of 6 years for these purchases and plans to keep the equipment indefinitely. Round all dollar answers to nearest dollar. For Year 2, what is the cash flow before taxes, CFBT2?  $[cb2] For Year 2, what is the deprecation rate, α2? (round to four decimals)  [a2] For Year 2, what is the depreciation charge, D2?  $[d2] For Year 2, what is the taxable income, TI2?  $[ti2] For Year 2, what is the amount of taxes, Taxes2?  $[x2] For Year 2, what is the cash flow after taxes, CFAT2?  $[ca2] Refer to the CFAT summary below. Use the CFAT that you calculated in part (f) for year 2.  What is the after-tax Rate of Return over the study period? (round to one decimal)  [ror]% Year CFAT,$ 0 −2,700,000 1 726,000 2 CFAT2 from part (f) 3 753,360 4 688,416 5 706,416 6 662,208   h. If their MARR is 18%, should the lab invest in this equipment? (YES or NO)    [in]

To develop Olympic hopefuls, a midwestern city plans to construct a dual-purpose venue: an outdoor public art site that can also be used as a training facility by Breaking and Skateboarding (Street and Park) athletes. Two bids are under consideration. Estimates are given below. The municipality uses an annual interest rate of 10%   Bid 1 Bid 2 Project Life 50 years 50 years Initial Investment $10,000,000 $15,000,000 Present Worth of Benefits $21,812,592 $32,223,147 Present Worth of O&M Costs $1,982,963 $3,965,926 (Round ratios to 2 decimal places) Compute the Benefit-Cost ratio for “Bid 1.”   [p1] Compute the Benefit-Cost ratio for “Bid 2.”   [p2] Based on a Benefit-Cost analysis, which bid should be selected, “Bid 1” or “Bid 2?” (enter 1 or 2) [bc]  

A company is considering an investment that is expected to generate the following cash flows, in actual dollars: Year, n NCF, Actual Dollars 0 −$[inv],000 1 [y1],000 2 [y1],000 3 [y1],000 The general inflation rate ( f ) during this period is expected to be [fbar]%. The company’s market interest rate is [mir]%. What is the equivalent present worth of this investment at Year 0? (Round answer to nearest dollar.)

You are analyzing an investment that is expected to generate the following cash flows, in actual dollars: Year, n NCF, Actual Dollars 0 −$[inv],000 1 [y1],000 2 [y1],000 3 [y1],000 Over this timeframe, the general inflation rate ( f ) is expected to be [fbar]%. Your company’s market interest rate is [mir]%. What is the equivalent present worth of this investment at Year 0? (Round answer to nearest dollar.)

A company plans to spend $3,700,000 on equipment. The equipment will be depreciated using the MACRS method and a 5-year recovery period. The company uses a study period of 6 years for these types of purchases and plans to keep the equipment indefinitely. Gross income is expected to be $900,000 in year 1 and increase by $170,000 each year. Annual operating expenses are expected to be $50,000 in year 1 and increase by $70,000 each year. The company’s combined marginal tax rate is 39%. A portion of the after-tax cash flow analysis is shown below. Year GI OE CFBT Dt TI Taxes CFAT 0 −$3,700,000 1 $900,000 $50,000 (a) $740,000 (b) (c) (d) 2 $1,041,260 3 $917,556 4 $867,734 5 $928,734 6 $906,617 Round to nearest dollar. For Year 1, what is the cash flow before taxes, CFBT? $[cb] For Year 1, what is the taxable income, TI? $[ti] For Year 1, what is the amount of taxes, Taxes? $[x] For Year 1, what is the cash flow after taxes, CFAT? $[ca] What is the after-tax Rate of Return over the study period? [ror]%  (one decimal) If the company’s MARR is 10%, should they invest in this equipment, YES or NO? [in]

Part 2 of 2 Parts Based on your calculation in Part 1, which group should your company hire?

A medical diagnostic laboratory plans to spend $2,300,000 on equipment to provide pathology services. The equipment will be depreciated using the MACRS method and a 5-year recovery period. Gross income is expected to be $800,000 in year 1 and increase by $80,000 each year. Annual operating expenses are expected to be $50,000 in year 1 and increase by $70,000 each year. The company’s combined marginal tax rate is 39%. The company uses a study period of 6 years for these purchases and plans to keep the equipment indefinitely. For Year 2, what is the cash flow before taxes, CFBT2? $[cb2] (nearest dollar) For Year 2, what is the deprecation rate, α2? [a2] (four decimals) For Year 2, what is the depreciation charge, D2? $[d2] (nearest dollar) For Year 2, what is the taxable income, TI2? $[ti2] (nearest dollar) For Year 2, what is the amount of taxes, Taxes2? $[x2] (nearest dollar) For Year 2, what is the cash flow after taxes, CFAT2? $[ca2] (nearest dollar) Refer to the CFAT summary below.  Use the CFAT that you calculated in part (f) for year 2.  What is the after-tax Rate of Return over the study period? [ror]% (one decimal) Year CFAT,$ 0 −2,300,000 1 636,900 2 CFAT2 from part (f) 3 641,924 4 579,134 5 585,234 6 539,667 h. If their MARR is 15%, should the lab invest in this equipment? (YES or NO)    [in]

A company is considering an investment with the following expected cash flows, in constant dollars. Year NCF, Constant Dollars 0 −[inv],000 1 [y1],000 2 [y1],000 3 [y1],000 The general inflation rate ( f ) during this project period is expected to be [fbar]%. The company’s inflation-free interest rate is [ip]%. What is the equivalent present worth of this project at Year 0? (Round answer to nearest dollar.)

To increase process cycle efficiency, a manufacturer is considering an investment project. The company uses a market interest rate of [mir]%. Over the life of the project, the general inflation rate is expected to be [fbar]%. What inflation-free interest rate should be used in the analysis? (Answer as a percentage, to two decimal places.)