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Got one question including solution in the document, just have a little problem of steps process. In 1 answer below » Got one question including solution in the document, just have a little problem of steps process. In part A, how to calculate “Net Income”? In part B, how to calculate “EBIT”? And the “Taxes (30%)” calculate using “EBIT” amount right? But why year 1~3 is positive value, year 4~6 is negative value? Also how the “Average after-tax income” come from. Thanks 
Additional Requirements Min Pages: 3 Level of Detail: Show all work Other Requirements: Got one question including solution in the document, just have a little problem of steps process. View complete question » Got one question including solution in the document, just have a little problem of steps process. In part A, how to calculate “Net Income”? In part B, how to calculate “EBIT”? And the “Taxes (30%)” calculate using “EBIT” amount right? But why year 1~3 is positive value, year 4~6 is negative value? Also how the “Average after-tax income” come from. Thanks Additional Requirements Min Pages: 3 Level of Detail: Show all work Other Requirements: Got one question including solution in the document, just have a little problem of steps process. Document Preview: 10.32 Quasar Tech Co. is investing $6 million in new machinery that will produce the next-generation routers. Sales to its customers will amount to $1,750,000 for the next three years and then increase to $2.4 million for three more years. The project is expected to last six years and cost the firm annually $898,620 (excluding depreciation). The machinery will be depreciated to zero by year 6 using the straight-line method. The company’s tax rate is 30 percent, and its cost of capital is 16 percent.
a. What is the payback period?
b. What is the average accounting return (ARR)?
c. Calculate the project NPV.
d. What is the IRR for the project?
Solution:
a.
Year
Net Income
Depreciation
Project 1 Cash Flows
Cumulative CF
0
$(6,000,000)
$(6,000,000)
1
$(104,034)
$1,000,000
895,966
(5,104,034)
2
$(104,034)
$1,000,000
895,966
(4,208,068)
3
$(104,034)
$1,000,000
895,966
(3,312,102)
4
350,966
$1,000,000
1,350,966
(1,961,136)
5
350,966
$1,000,000
1,350,966
(610,170)
6
350,966
$1,000,000
1,350,966
740,796
PB = Years before cost recovery + (Remaining cost to recover/ Cash flow during the year)
= 5 + ($610,170 / $1,350,966) = 5.45 years
b.
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Sales
$ 1,750,000
$ 1,750,000
$ 1,750,000
$ 2,400,000
$ 2,400,000
$ 2,400,000
Expenses
898,620
898,620
898,620
898,620
898,620
898,620
Depreciation
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
EBIT
$(1,48,620)
$(1,48,620)
$(1,48,620)
$ 501,380
$ 501,380
$ 501,380
Taxes (30%)
44,586
44,586
44,586
(150,414)
(150,414)
(150,414)
Net income
$ (104,034)
$ (104,034)
$ (104,034)
$ 350,966
$ 350,966
$ 350,966
Beginning BV
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
Less: Depreciation
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
Ending BV
$ 5,000,000
$ 4,000,000
$ 3,000,000
$ 2,000,000
$ 1,000,000
$ 0
Average after-tax income =… Attachments: Q-Attachment…..docx View less » Aug 03 2015 01:25 PM
