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Q403Fall12

Q403Fall12

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Published by Jamie Woods

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Published by: Jamie Woods on Nov 20, 2012
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12/04/2012

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EC 314: Public and Private Investment Fall 2012 Q4: Income Cash Flow #3

PASS Name:

NO PASS

Consider the following transaction that involves the purchase of a Thneed. The Thneed is a 5 year asset with a cost basis of $10,000.00. The Thneed produces a small increase in sales, $2,000.00, but costs and additional $1,000.00 to operate. The Thneed was purchased with a small loan of $5,000.00 at a 10.00% annual rate repaid with a single payment in year 2. You anticipate selling the Thneed in year 2 for $5,000.00. Your firm faces a combined tax rate of 40.00% and a MARR of 5.00%.
Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 3 Year 33.33 44.45 14.81 7.41 5 Year 20.00 32.00 19.20 11.52 11.52 5.76 7 Year 14.29 24.49 17.49 12.49 8.93 8.92 8.93 4.46 10 Year 10.00 18.00 14.40 11.52 9.22 7.37 6.55 6.55 6.56 6.55 3.28 15 Year 5.00 9.50 8.55 7.70 6.93 6.23 5.90 5.90 5.91 5.90 5.91 5.90 5.91 5.90 5.91 2.95

Income Statement Year 1 Year 2 Year 3 Year 4 Operating Revenue Operating Expenses Interest Depreciation Taxable Income Tax Net Income Cash Flow Operations Net Income Depreciation Investments Working Capital Gains Tax Finance Net Cash Flow 1. Fill in the Income and Cash Flow Statement above. 2. Is this a good investment?

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