10.16 An asset in the five-year MACRS property class costs $150,000 and has a zero estimated salvage value after six years of use. The asset will generate annual revenues of $320,000 and will require $80,000 in annual labor and $50,000 in annual material expenses. There are no other revenues and expenses. Assume a tax rate of 25%. a. Compute the after-tax cash flows over the project life. b. Compute the NPW at MARR=12%. Is the investment acceptable?

10.16 An asset in the five-year MACRS property class costs $150,000 and has a zero estimated salvage value after six years of use. The asset will generate annual revenues of $320,000 and will require $80,000 in annual labor and $50,000 in annual material expenses. There are no other revenues and expenses. Assume a tax rate of 25%. a. Compute the after-tax cash flows over the project life. b. Compute the NPW at MARR=12%. Is the investment acceptable?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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BC Junction purchased some embroidering equipment for their Denver facility 3 years ago for $15,000. This equipment qualified as MACRS 5-year property. Maintenance costs are estimated to be $1000 this next year and will increase by $1000 per year thereafter. The market (salvage) value for the equipment is $10,000 at the end of this year and declines by $1000 per year in the future. If BC Junction has an after-tax MARR of 30%, a marginal tax rate of 28% on ordinary income, depreciation recapture, and losses, what aftertax life of this previously purchased equipment has the lowest EUAC?
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Certain new machinery used in manufacturing of motor vehicles, when placed in service, is estimated to cost $275,000. It is expected to reduce net annual operating expenses by $56,000 per year for 10 years and to have a $41,000 MV at the end of the 10th year. Assume that the firm is in the federal taxable income bracket of $335,000 to $10,000,000 and that the state income tax rate is 7.5%. State income taxes are deductible from federal taxable income. This machinery is to be depreciated using the MACRS (GDS). Develop the BTCFS and ATCFS and compute for the respective PWs at EOY O using an MARR of 12%. Before-Tax Cash Flow ($) Cash Flow for Income After-Tax Cash Flow ($) EOY Depreciation ($) Taxable Income ($) Taxes ($) [1] 1 [2] [3] 3 [4] [5] 4 15 [6] 8 [7] 9 10 [8] PW(0) using MARR [9] [10] Based on Before-Tax Analysis, is this machinery worth investing in? ("YES"/"NO") [11] Based on After-Tax Analysis, is this machinery worth investing in? ("YES"/"NO"} [12]
An after-tax analysis for a new $50,000 machine proposed for a fiber optics manufacturing line is in process. The before tax cash flow for the machine is estimated at $20,000 per year. A recovery period of 5 years applies as well as an effective tax rate of 35%. For parts c and d, please calculate your answer to 2 decimal places. Leave in decimal form. Format 0.00 For parts a and b, please calculate your answer to the nearest whole dollar. Format 0000 No commas Use a 6-year period for the comparison to accommodate the half-year convention imposed by MACRS and an after tax MARR of 8% to answer the following questions. a. What is the allowable depreciation deduction for EOY 3? $ b. What is the after tax cash flow for EOY 5? $ c. What is the before tax IRR for this equipment? d. What is the after tax IRR for this equipment? e. Based on the results on the above parts, is the equipment economically justified using an after tax analysis?
Certain new machinery when placed in service is estimated to cost $180,000. It is expected to reduce net annual operating expenses by $36,000 per year for 10 years and to have a market value $30,000 at the end of the 10tℎ year Develop the ATCF and BTCF Calculate BTROR and ATROR considering tax rate of 38%. The Machinery is in the MACRS five-year property class. Solve using excel spreadsheet Find best alternative using Benefit-Cost analysis method \table[[Useful Life,50 years,i.,,L],[MARR,10%,,,],[Project,\table[[Capital],[Investment]],\table[[Annual],[maintenance],[cost]],Annual Benefit,Market value],[A,$8,500,000,$750,000,$2,150,000,$1,250,000. Solve using excel spreadsheet
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Consider the proposed capital investment in an engineering project. • Proposed capital investment: $105,000 • Salvage value (end of year four): 0 • Annual expenses per year. $20,000 • Gross revenues per year: $55,000 • Depreciation method: GDS • Property Class year. 3 • Effective income tax rate (t): 35% • After-tax MARR (i): 10% • The study period is 4 years. determine a) After-tax AW b) annual equivalent EVAF
Your company has purchased new equipment for $100,000. An additional $20,000 has been charged for shipping and handling. The equipment has a useful life of 10 years and a salvage value of $10,000. Using the straight-line method, what is the depreciation amount during the second year? $9,000 $10,000 $11,000 None of the above
An asset costing P50,000 has a life expectancy of 6 years and a estimated salvage value of P8,000. Calculate the depreciation charge at the end of the fourth period using fixed percentage method. O P7,144.2 O P5,263.86 O P3,878.4 P5,465.75 OP5,865.75
A firm can purchase a centrifugal separator (5-year MACRS property) for $22,000. The estimated salvage value is $4,000 after a useful life of six years. Operating and maintenance (O&M) costs for the first year are expected to be $2,200. These O&M costs are projected to increase by $1,000 per year each year thereafter. The income tax rate is 24% and the MARR is 11% after taxes. What must the uniform annual benefits be for the purchase of the centrifugal separator to be economical on an after-tax basis?
Hw.112.
A proposed cost-saving device has an installed cost of $570,000. It is in Class 8 (CCA rate = 20%) for CCA purposes. It will actually function for five years, at which time it will have no value. There are no working capital consequences from the investment, and the tax rate is 35%. a. What must the pre-tax cost savings be for us to favour the investment? We require an 11% return. (Hint: This one is a variation on the problem of setting a bid price.) (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Cost savings $122332.17 b. Suppose the device will be worth $81,000 in salvage (before taxes). How does this change your answer? (Do not round your Intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) Cost savings 170855.86