A company is evaluating the addition of equipment to its present operations. They need to purchase equipment for $160,000. The five year MACRS GDS Recovery Method is appropriate for the investment and the total tax rate (federal plus state) is 40%. Gross revenue is expected to be $30,000/year while maintenance costs are expected to be $5,000/year. It is expected that the operation will be shut down at the end of the fourth year with a salvage value of $20,000. a- Draw a BTCFD b- Prepare a table showing your development of the ATCF's. c- If the company's aftertax MARRis 12%/year, is this a profitable investment?
A company is evaluating the addition of equipment to its present operations. They need to purchase equipment for $160,000. The five year MACRS GDS Recovery Method is appropriate for the investment and the total tax rate (federal plus state) is 40%. Gross revenue is expected to be $30,000/year while maintenance costs are expected to be $5,000/year. It is expected that the operation will be shut down at the end of the fourth year with a salvage value of $20,000. a- Draw a BTCFD b- Prepare a table showing your development of the ATCF's. c- If the company's aftertax MARRis 12%/year, is this a profitable investment?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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A company is evaluating the addition of equipment to its present operations. They need to
purchase equipment for $160,000. The five year MACRS GDS Recovery Method is
appropriate for the investment and the total tax rate (federal plus state) is 40%. Gross revenue
is expected to be $30,000/year while maintenance costs are expected to be $5,000/year. It is
expected that the operation will be shut down at the end of the fourth year with a salvage value
of $20,000.
a- Draw a BTCFD
b- Prepare a table showing your development of the ATCF's.
c- If the company's aftertax MARRis 12%/year, is this a profitable investment?
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