A manufacturer of hardboard and fiber cement sidings and panels purchased new equipment for its new product line for $20,000. A declining balance depreciation at a rate of 1.5 times the straight line rate with a 5-year recovery period and an estimated salvage value of $8000 was used to write off the capital investment. The company expects to realize net revenue of $57,000 each year for the next 5 years. However, due to the sudden change in business direction, the company decided to sell the equipment after 2 years of operation for $21,000. Assuming an effective tax of 40% and an after-tax MARR of 12% per year, calculate the future worth of the after-tax cash flow at the end of year 2.(HINT: skip $ and comma symbols) Year BTCF ATCF 0 -20000 -20,000 1 57,000 36,600.00 2a 57,000 35,880.00 2b 25579 ...

Hello from your question there is a mix up of the figures for the BTCF AFTER 2 years and the BTCF given in the table so i would work with the value contained in the table i.e ( 25579  )

answer : 71052

Explanation:

Declining balance amount can be expressed/calculated using this formula a

   also R = 1.5 / 5 = 0.3 , k = 2 years

therefore Bv = 20000 ( 1 - 0.3 = 9800

Mv = 25579

Recapturing depreciation = Mv - Bv = 25579 - 9800 = 15779

BTCF is calculated as = ( capital investment + GI - expense incurred )

TI = GI - Expense - Depreciation + Depreciation recapture + capital gain

ATCF = BTCF - taxes

taxes = TI (l)

The future worth of the after-tax cash flow at the end of Year 2

Fw = -20000(f/p,12%,2) + 36600(f/p,12,1) + 35880 + 19268

= -20000(1.2544) + 36600(1.1200) + 55148 = 71052

attached below is the complete table used for the calculation

1) the stages a new product goes through from beginning to end, i.e., the stages that a product passes through from introduction through growth, maturity, and decline. 2) the time from initial research and development to the time at which sales and support of the product to customers are withdrawn. 3) the period of time during which a product can be produced and marketed profitably.

                                          hope it

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