An injection molding machine can be purchased and installed for $90,000. 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 $19,000. An effective income tax rate of 45% is used by the company, and the after-tax MARR equals 18% per year. A Click the icon to view the GDS Recovery Rates (r,) for the 7-year property class a. What is the approximate value of the company's before-tax MARR? The before-tax MARR is %. (Round to the nearest whole number.) b. Determine the GDS depreciation amounts in years one through eight. (Round to the nearest dollar.) IT Year Depreciation, S 2 5 6 7. 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 s (Round to the nearest dollar.) d. Set up a table and calculate the ATCF for this machine. (Round to the nearest dollar.) EOY BTCF,S Depreciation, S TI S T(45%), S ATCF, S - 90,000 PW(18%). S -90,000 -90,000 6 8 8 11,000 PW(18%) of ATCF = e. Should a recommendation be made to purchase the machine? The project should be
An injection molding machine can be purchased and installed for $90,000. 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 $19,000. An effective income tax rate of 45% is used by the company, and the after-tax MARR equals 18% per year. A Click the icon to view the GDS Recovery Rates (r,) for the 7-year property class a. What is the approximate value of the company's before-tax MARR? The before-tax MARR is %. (Round to the nearest whole number.) b. Determine the GDS depreciation amounts in years one through eight. (Round to the nearest dollar.) IT Year Depreciation, S 2 5 6 7. 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 s (Round to the nearest dollar.) d. Set up a table and calculate the ATCF for this machine. (Round to the nearest dollar.) EOY BTCF,S Depreciation, S TI S T(45%), S ATCF, S - 90,000 PW(18%). S -90,000 -90,000 6 8 8 11,000 PW(18%) of ATCF = e. Should a recommendation be made to purchase the machine? The project should be
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
Problem 1PS
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Transcribed Image Text:An injection molding machine can be purchased and installed for $90,000. 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 $19,000. An effective income tax rate of 45% is used by the company, and the after-tax MARR equals 18% per year.
Click the icon to view the GDS Recovery Rates (r) for the 7-year property class.
a. What is the approximate value of the company's before-tax MARR?
The before-tax MARR is %. (Round to the nearest whole number.)
b. Determine the GDS depreciation amounts in years one through eight. (Round to the nearest dollar.)
IT
Year
Depreciation, $
1
4
5
6
8
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 $ . (Round to the nearest dollar.)
d. Set up a table and calculate the ATCF for this machine. (Round to the nearest dollar.)
BTCF, S
Depreciation, S
ATCF, S
- 90,000
EOY
TI, $
T(45%), $
PW(18%), S
- 90,000
- 90,000
1
2
4
6
7
8
8
11,000
PW(18%) of ATCF =
e. Should a recommendation be made to purchase the machine?
The project should be
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