A manufacturing firm is considering different investments that qualify for different property classes. Alternative A is for specialized tools that qualify as 3-year property, require an investment of $300,000, and provide before-tax annual savings of $63,333.33 per year over the 10-year planning horizon. Alternative B is for production equipment that qualifies as 7-year property, requires an investment of $450,000, and provides before-tax annual savings of $91,666.67 per year over the 10-year horizon. An after-tax MARR of 10% applies, and with a 25% income-tax rate this is equivalent to a before-tax MARR of 13.33%. Which alternative is preferred?
A manufacturing firm is considering different investments that qualify for different property classes. Alternative A is for specialized tools that qualify as 3-year property, require an investment of $300,000, and provide before-tax annual savings of $63,333.33 per year over the 10-year planning horizon. Alternative B is for production equipment that qualifies as 7-year property, requires an investment of $450,000, and provides before-tax annual savings of $91,666.67 per year over the 10-year horizon. An after-tax MARR of 10% applies, and with a 25% income-tax rate this is equivalent to a before-tax MARR of 13.33%. Which alternative is preferred?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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A manufacturing firm is considering different investments that qualify for different property classes. Alternative A is for specialized tools that qualify as 3-year property, require an investment of $300,000, and provide before-tax annual savings of $63,333.33 per year over the 10-year planning horizon. Alternative B is for production equipment that qualifies as 7-year property, requires an investment of $450,000, and provides before-tax annual savings of $91,666.67 per year over the 10-year horizon. An after-tax MARR of 10% applies, and with a 25% income-tax rate this is equivalent to a before-tax MARR of 13.33%. Which alternative is preferred?
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