An injection molding machine can be purchased and installed for $60,000. It is in the seven-year GDS property class and is expected to be kept in service for eight years. It is believed that $11,000 can be obtained when the machine is disposed of at the end of year eight. The net annual value added (i.e., revenues less expenses) that can be attributed to this machine is constant over eight years and amounts to $12,000. An effective income tax rate of 22% is used by the company, and the after-tax MARR equals 15% per year. Click the icon to view the GDS Recovery Rates () for the 7-year property class. a. What is the approximate value of the company's before-tax MARR? The before-tax MARR is 19%. (Round to the nearest whole number.) b. Determine the GDS depreciation amounts in years one through eight. (Round to the nearest dollar.) c. What is the taxable income at the end of year eight that is related to capital investment? The taxable income at the end of year eight is $ 11000. (Round to the nearest dollar.) d. Set up a table and calculate the ATCF for this machine. (Round to the nearest dollar.) Year Depreciation, $ 1 8574 2 14694 3 10494 4 7494 5 5358 6 5352 7 5358 8 2676 ΕΟΥ BTCF, $ Depreciation, $ TI, $ T(22%), $ 0 - 60,000 1 12000 8574 1542 754 One or more of your responses is incorrect. At least one of your answers is incorrect. Let R be the revenues (and savings) from the project during period k, Е be the cash outflows, d be the depreciation, t be the effective income tax rate on ordinary income. Then the income tax is Tk=t(RK-Ek dk). BTCF, ATCF, and the PW values are calculated with BTCF-R-Ex ATCF = BTCFk+ Tk. ATCF k PW(1%)-ATCF (PIF,i%,k) = · (1+1) ATCF, $ - 60,000 12754 PW(15%), $ - 60,000 11091 OK

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter17: Long-term Investment Analysis

Section: Chapter Questions

Problem 2E