Purchase Solution

after-tax cash flows

Not what you're looking for?

Ask Custom Question

Engineering economy questions. I need to know what formulas I need to use in order to solve the problems as well as how to solve the problems

Attachments
Purchase this Solution
Solution Summary

The after-tax cash flows are calculated.

Solution Preview

see the attached file. Thanks

1. An investor purchased 1000 shares of Omega common stock for $15,000. He held the stock for ten years. For the first four years he received annual end-of-year dividends of $1,200. For the next four years he received annual dividends of $1,500. He received $2,000 dividend for the last two years. At the end of the tenth year he sold his stock for $20,000. What rate of return did he receive on his investment? (Try 12%)
First write the cash flows associated with the investment
Year Cash Flow
0 -15000
1 1200
2 1200
3 1200
4 1200
5 1500
6 1500
7 1500
8 1500
9 2000
10 22000 Note: Dividend plus selling price

Now the easiest way to calculate the rate of return is use the IRR function in Excel.
IRR 11.32%

If you are not using IRR then you have to calculate the return by hit and trial method. You have a hint to use 12%, so at 12% calculate the NPV of the investment. If it is greater than 0, increase the discount rate, else decrease the discount rate. We repeat the same till be reach a point where NPV is zero. I am illustrating the process below.
Discount Rate 12%
Year Cash Flow Discount Factor Discounted ...

Purchase this Solution
Free BrainMass Quizzes
Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

View More Free Quizzes
Related BrainMass Solutions

  • Cash flows after tax

    346214 Cash flows after tax (Cash flows after tax) Revenues increase by $400,000, cash operating expenses increase by $180,000, and depreciation increases by $45,000. The tax rate is 34% a.

  • After Tax Cash Flows

    the calculation of after tax cash flows

  • Capital investment decision making

    Discounted pre-tax cash flows are $429,953, undiscounted after-tax cash flows are $273,600, and discounted after-tax cash flows are $221,414. The net present value of the investment is: a. $189,952 b. 33,600 c. 18.586 d. (18,586) 3.

  • Annual Before Tax Cash Flow

    Before tax cash flows X (1-tax rate) = after tax cash flow Before tax cash flow = 1,992.43/(1-0.4) = $3,320.71 The after tax cash flow is 1,992,43 The before tax cash flow is 3,320.71 The annual before tax cash flows are determined.

  • Preston Corporation: Computing the Internal Rate of Return

    Pre-tax cash flows, discounted at 10 percent are $427,697, undiscounted after-tax cash flows are $279,185, and after-tax cash flows, discounted at 10 percent, are $225,660. What is the internal rate of return?

  • PV analysis including incometaxes, & PV of cash inflows

    $(6,840.00) After tax cash flows 7 $20,331 0.400 $8,125.09 After tax cash flows 8 $19,765 0.351 $6,928.77 After tax cash flows 9 $19,312 0.308 $5,938.57 After tax cash flows 10 $18,950 0.270 $5,111.52 After tax cash flows 11

  • Total after-tax present value of the cash flows

    =Answer This provides the steps to calculate the total after-tax present value of the cash flows.

  • Gross income, depreciation, taxable income, taxes paid

    You have a before tax items section, an after tax items section, IRR for the below tax cash flows and IRR for the after tax cash flows. A decision is reached.

  • Net present value (CC Cushions Company)

    2) Calculate the NPV Pre- Tax Cash Flows= $2.00 million Tax rate= 34% Therefore After Tax Cash Flows= $1.32 million = (100% - 34.% ) x 2 g= growth rate in cash flows= 2.50% r= discount rate

  • Net present value of this investment proposal

    That is, calculate the after-tax cash flows as if there were no non-cash expenses. Then, adjust these after-tax cash flows for the tax credits resulting from the non-cash tax shields.

View More Related Solutions