EC 314: Public and Private Investment Summer 2011 Q4: Income Cash Flow #1

PASS Name:

NO PASS

Consider the following transaction. You are taking out a $20,000 loan in year 1. The terms of the loan are that you will make single annual payments in years 2 and 3. The interest rate on the loan is 12%. Your rm faces a combined tax rate of 50.00% and a MARR of 20.00%.
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 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?

Year 3

Year 4