Suppose an insurance business buys a

$300,000 office building, which it wishes to depreciate over 6 years with a

scrap value of $100,000. Analyze the cash flow if the net annual income is

$60,000 the first year and increases by $60,000 each year. If the tax rate =

40%, find the NPV at 30% and the IRR in each of these situations:

a. Make a schedule and use straight-line

depreciation.

b. Make a schedule and use sum of years

digits depreciation.

c. Make a schedule and use double declining

balance depreciation. Switch to straight-line depreciation starting the 3rd

year.

d. Find the

Suppose an insurance business buys a

$300,000 office building, which it wishes to depreciate over 6 years with a

scrap value of $100,000. Analyze the cash flow if the net annual income is

$60,000 the first year and increases by $60,000 each year. If the tax rate =

40%, find the NPV at 30% and the IRR in each of these situations:

a. Make a schedule and use straight-line

depreciation.

b. Make a schedule and use sum of years

digits depreciation.

c. Make a schedule and use double declining

balance depreciation. Switch to straight-line depreciation starting the 3rd

year.

d. Find the income units depreciation if we

hope to have income units (in hundred thousand dollars) of 6, 12, 18, 24, 30,

and 36 for each year from this buildings use.

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