A firm has invested $30000 in equipment with a 5- year useful life. The machinery will have no salvage value. The annual benefits from the machinery are $7000 for the first year and increase by $1000 per year. Assume a combined 40% income tax rate, and the firm uses the straight-line depreciation. (a) ) Compute the before-tax IRR. (b) 5) Compute the after-tax IRR.

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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A firm has invested $30000 in equipment with a 5-
year useful life. The machinery will have no salvage
value. The annual benefits from the machinery are
$7000 for the first year and increase by $1000 per
year. Assume a combined 40% income tax rate, and
the firm uses the straight-line depreciation.
(a)
) Compute the before-tax IRR.
(b)
s) Compute the after-tax IRR.
Transcribed Image Text:A firm has invested $30000 in equipment with a 5- year useful life. The machinery will have no salvage value. The annual benefits from the machinery are $7000 for the first year and increase by $1000 per year. Assume a combined 40% income tax rate, and the firm uses the straight-line depreciation. (a) ) Compute the before-tax IRR. (b) s) Compute the after-tax IRR.
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