Question

"A firm is considering purchasing a computer system. -Cost of system is $194,000. The firm will pay for the computer system in year 0. -Project life: 4 years -Salvage value in year 0 (constant) dollars: $15,000 -Depreciation method: five-years MACRS -Marginal income tax rate = 37% (remains constant over time) -Annual revenue = $152,000 (year-0 constant dollars) -Annual expenses (not including depreciation) = $86,000 (year-o constant dollars) -The general inflation rate is 3.6% during the project period (which will affect all revenues, expenses, and the salvage value but not depreciation). -The firm borrows the entire $194,000 at 13.3% interest to be repaid in 2 annual payments. The debt interest paid and the principal payment SHOULD NOT be changed by the inflation rate. Lending agencies set the interest rate of borrowing to account for the inflation rate. Calculate the effects of borrowing and include the debt interest paid and the principal repayment into the income statement and cash flow statement. Determine the INFLATION-FREE IRR' of the computer system. Enter your answer as a percentage between 0 and 100." Enter answer.

Answer 1

ANSWER:- 16.125%

YEAR 0. YEAR1 YEAR2 YEAR3 YEAR4 YEAR5

YEARG YEAR (0) 452000 86000 66000 20% 0 ANNUAL REVENUE ANNUAL EXPENSES op Profit DcPriceATION EBIT INTREST COST GROSS PROFIT TAXES NET PROFIT YEARC 1,57 472 89.096 68376 38800 29576 25802 3774 1396 38 237762 YEAR(2) 1,63, 141 92303.46 70 837.54 38800 32037.54 25802 6235.536 2307.148 3928.388 YEAR (3) 4690141 95626.38 7338769 38800 34587.69 25802 8785.687 3250.704 5534,983 YEAR(4) 175,0886 9906893 76029.64 .38800 37229.64 12901 94328-64 9001-598 15327005 38800 - 38800 -38800 --38800 EBIT (1-7) Dep SALVAGE VALUE FCF 21790724 38 800 o 38800 18632.88 38800 0 15743288 20183.65 38800 0 58983.65 93454.68 38800 17279.46 79534.14 -194000 60 590.24 38800 IRR 116.125% ANSWER :- 1/16.125% 16.125% REDMI NOTE 8 PRO AI QUAD CAMERA