An industrial organization has established an automated assembly line (for $360,000) that will reduce labor costs by $56,000 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 25%. 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 $360,000) that will reduce labor costs by $56,000 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 25%. 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?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:An industrial organization has established an automated assembly line (for $360,000) that will reduce
labor costs by $56,000 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 25%. 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?
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