A Startup is considering buying a $300,000 preceof equipment. If it puranases the equipment, to willtake a loan for the entire amout; the intereston the loan is 3%. and the luan will be repond in5 equal end of year payments. The Startup estimaksthat the equipment would generall an additional$160,000 of revenue each year. At the end of5 year, the equipment would have a salvague.value of $20,000. The tax rate is 25% Assuminga planning horizon of 5 years. that the equipmentas depreciated using MACKS (3-year property class)and that the medical practice usesMARK of 7%.an after tax(a) Compute the Present Worth and determine whether thestartup Should invest in the equipment(b) Re - compute the present worth if there exists a cl.inflation / year.woulddescisionyourchange?

Present Worth (also known as Present Value or Net Present Value) is a financial concept used in the…

A Startup is considering buying a $300,000 prece the it purchases of equipment. If equipment, to will take a luan for the entire amout; the interest on the loan is 3% and the luan will be repond in 5 equall end of year payments. The Startup estimaks that the equipment would generall an additional 81600212 At the NE collenue Grad

A Startup is considering buying a $300,000 prece the it purchases of equipment. If equipment, to will take a luan for the entire amout; the interest on the loan is 3% and the luan will be repond in 5 equall end of year payments. The Startup estimaks that the equipment would generall an additional 81600212 At the NE collenue Grad

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

A Startup is considering buying a $300,000 prece
of equipment. If it puranases the equipment, to will
take a loan for the entire amout; the interest
on the loan is 3%. and the luan will be repond in
5 equal end of year payments. The Startup estimaks
that the equipment would generall an additional
$160,000 of revenue each year. At the end of
5 year, the equipment would have a salvague.
value of $20,000. The tax rate is 25% Assuming
a planning horizon of 5 years. that the equipment
as depreciated using MACKS (3-year property class)
and that the medical practice uses
MARK of 7%.
an after tax
(a) Compute the Present Worth and determine whether the
startup Should invest in the equipment
(b) Re - compute the present worth if there exists a cl.
inflation / year.
would
descision
your
change?

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Step 1: Define Present Worth

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Step 2: Solve Present Worth for Part (A)

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Step 3: Solve Present Worth for Part (B)

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