Assuming an annual inflation

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1) You purchased a machine for $750,000 (installed), and you depreciated it using a 7 year MACRS. This machine generates $300,000 in revenue. In year 4, you sold the machine for $300,000. You received a loan for $500,000 on a 5 year loan at 5% (note, you must pay the remaining balance of this loan at the end of year 4 from the proceeds of the sale). In addition, you invested $50,000 in working capital initially. Your company is in a 35% tax bracket. Show the end of year cash flows for this project (attach the table) Yr0?________________ Yr1?________________ Yr2?________________ Yr3?________________ Yr4?________________

2) In the prior problem, assume that you have a 12% MARR, What is your NPW and IRR? NPW?________________ IRR?________________

3) You think that you need $60,000/year to live on when you retire. Assuming an annual inflation of 3.4%, how much would you need in actual dollars per year 40 years from now to have the same purchasing capability?

4) You expect your cost for steel to increase 3% next year, then 5% the year after that, and finally 6% three years out. Compute the average inflation rate for your steel purchases over the next 3 years.

Reference no: EM13808367

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