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April 21, 2014

Homework Help: St. line depreciation & salvage value

Posted by rk on Saturday, February 6, 2010 at 8:36am.

A USED CONCRETE PUMPING TRUCK CAN BE PURCHASED FOR 125,000 DOLLARS. THE OPERATING COST ARE EXPECTED TO BE 65,000 DOLLARS AT THE FIRST YEAR & INCREASE BY 5% EACH YAER THEREAFTER. AS A RESULT OF THE PURCHASE, THE COMPANY WILL SEE IN INCREASE IN INCOME OF 100,000 DOLLARS THE FIRST YEAR & 5% MORE EACH SUBSEQUENT YEAR. THE COMPANY USES STRAIGHT LINE DEPRECIATION. THE TRUCK WILL HAVE USEFUL LIFE OF 5 YEARS & NO SALVAGE VALUE. MANAGEMENT WOULD LIKE TO SEE A 10% RETURN ON ANY INVESTMENT. THE COMPANY TAX RATE IS 28%

1. What is the compound interest factor used to determine present value in year number 5?
2. based on the information truck should be purchased or leased
3. taxes due at the end of year 5 ?
4. taxable income in year 5?
5. required sales price to receive a 10% ROR

thanks a lot in advance

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