Calculate the interest on loan for each year

Reference no: EM13231380

A machine has an initial cost of $500,000, and was estimated to have a salvage value of $30,000 at the end of its 7 years useful life. The machine is expected to generate annual net savings of $125,000. A loan of $200,000 at 7% interest will help fund the purchase. The loan is to be repaid in seven equal annual installments including interest. The firm's marginal income tax rate is 39%. The equipment qualifies for MACRS 5-year property.
a. Calculate the interest on loan for each year
b. Using MACRS-GDS depreciation (5-yr property), calculate the after-tax cash flows
c. Based on the after-tax cash flows, calculate the internal rate of return

Reference no: EM13231380

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