Inflation free rate-inflation rate-inflation free rate

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Reference no: EM131110111

An automobile is purchased in 2016 with $25,000, which is supposed to bring $5,000/year to buyer for the next 5 year. Salvage value of this product is $3,000 at the end of five years useful life. Derive a set of BTCF and ATCF tables considering 5% inflation rate and 34 percent tax rate. You have to consider three types of depreciation charge methods i) Straight Line ii) Sum-of-Year-Digit method and iii) MACRS

a) You need to compute i) ROR based (Inflation free interest rate) on BTCF Constant $$ ii) ROR (Market Rate) based on BTCF inflated $$ iii) ATROR with Constant $$ iv) ATROR with Inflated $$.

b) Why in case of BTCF: Market rate = (Inflation free rate + Inflation rate + Inflation free rate* Inflation rate) is true but it does not work for ATCF

All answers should be in EXCEL (Spreadsheet) only

Reference no: EM131110111

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