Posted by Subhotosh Khan on September 22, 2002 at 19:03:57:
In Reply to: you been drinking, Mr K ?! posted by Denis Borris on September 20, 2002 at 22:21:31:
: :Shouldn't we have:
: :81000(1+i)^3 = .67*(77000*(1+i)^2+77000*(1+i)+35000)
: :If that is true then I get 1+i = 1.2989
: :or IIR = 29.89%
:
: : : Shouldn't we have:
: : : 81(1+i)^3 = 60.5*(1+i)^2+60.5*(1+i)+32.36
: : : If that is true then I get 1+i = 1.4513
: : : or IIR = 45.13%
: To start, why 2 answers ? :) Maybe the good Doctor forged one of them?
: Anyhow, 29.89% and 45.13% is (in my books) way too high;
: not sure what you're doing: are you working it out as a PRE-TAX percentage?
: If so, then it would be understandable.
: I am confident my answer gives the exact "take-home-pay" rate (example):
: Initial deposit : $5000
: interest 1 year later: $500 : $5500
: income tax on interest: $200 : $5300
: The "actual yield" to the depositor is 6% (not 10%) : that's the way I did mine..
: The "before tax" interest income is 10%
: Of course, the interest cost to the BANK who pays out $500 is 10%.
************************************
First year the machine earns 77000 dollars
Depriciation 27000
total earnings before taxes = 50000
tax = .33 * 50000 = 16.5 K
After tax revenue = 77 - 16.5 K = 60.5 K
Now when you are looking at the end of third year - shouldn't this
amount be multiplied by (1+i)^2 .. assuming I did not put the
money under my mattress (very uncomfortable situation)
Both the answers were posted by me - in the first one I forgot to take
care of depreciation. I corrected that in my second post.