A Boeing contractor responsible for producing a portion of the landing gear for huge airliners experienced a storm-related power glitch during the multi-axis milling, to tolerances less than 0.001 inch, of a large and complex part. The value already in the part, plus the equipment damage, was $300,000. Risk analysis indicates that a similar event might occur once per year on average if nothing is done. PolyPhaser, a leader in lightning and surge protection, was commissioned to do a turnkey installation to protect this critical portion of the process. The first cost is $480,000 installed. A total of $275,000 is borrowed at a rate of 12% per year and no principal is repaid in the first year. Deductible annual costs are $Y, and depreciation is MACRS-GDS in the 7-year property class, or 14.29% in the first year. The taxable income is $15,000. Solve, a. What is the value of the “deductions” or $Y in the first year? b. What is the income tax paid in the first year assuming a income-tax rate of 25%? c. What is the after-tax cash flow for the first year?
A Boeing contractor responsible for producing a portion of the landing gear for huge airliners experienced a storm-related power glitch during the multi-axis milling, to tolerances less than 0.001 inch, of a large and complex part. The value already in the part, plus the equipment damage, was $300,000. Risk analysis indicates that a similar event might occur once per year on average if nothing is done. PolyPhaser, a leader in lightning and surge protection, was commissioned to do a turnkey installation to protect this critical portion of the process. The first cost is $480,000 installed. A total of $275,000 is borrowed at a rate of 12% per year and no principal is repaid in the first year. Deductible annual costs are $Y, and
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
