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

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