An industrial organization has established an automated assembly line (for $240,000) that will reduce labor costs by $36,000 each year for 10 years. The Internal Revenue Service has ruled that you must depreciate the assembly line on a Straight Line (SL) basis with a depreciable life of 10 years. After-tax MARR is 10% per year. The effective income tax rate is 40%. After 10 years, the machine will have zero salvage value. a) Draw a table showing Before Tax Cash Flow (BTCF) and After-Tax Cash Flow (ATCF). b) Calculate the after-tax PW and IRR. (Use interpolation method to find IRR). Is it feasible?
An industrial organization has established an automated assembly line (for $240,000) that will reduce labor costs by $36,000 each year for 10 years. The Internal Revenue Service has ruled that you must depreciate the assembly line on a Straight Line (SL) basis with a depreciable life of 10 years. After-tax MARR is 10% per year. The effective income tax rate is 40%. After 10 years, the machine will have zero salvage value. a) Draw a table showing Before Tax Cash Flow (BTCF) and After-Tax Cash Flow (ATCF). b) Calculate the after-tax PW and IRR. (Use interpolation method to find IRR). Is it feasible?
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 9P
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An industrial organization has established an automated assembly line (for $240,000) that will reduce labor costs by $36,000 each year for 10 years. The Internal Revenue Service has ruled that you must
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