Because of tighter safety regulations, an improved air filtration system must be installed at a plant that produces a highly corrosive chemical compound. The capital investment in the system is $260,000 in present-daydollars. The system has a useful life of 10 years and is in the MACRS (GDS) five-year property class. It is expected that the MV of the system at the end of its 10-year life will be $50,000 in present-day dollars. Annual expenses,estimated in present-day dollars, are expected to be $6,000 per year, not including an annual property tax of 4% of the investment cost (does not inflate). Assume that the plant has a remaining life of 20 years and that replacement costs, annual expenses, and MV increase at 6% per year. If the effective income tax rate is 40%, set up a spreadsheet to determine the ATCF for the system over a 20-year period. The after-taxmarket rate of return desired on investment capital is 12% per year (im).What is the PW of costs of this system after income taxes have been taken into account?Develop the real-dollar ATCF. (Assume that the annual general price inflation rate is 4.5% over the 20-year period.)
Because of tighter safety regulations, an improved air filtration system must be installed at a plant that produces a highly corrosive chemical compound. The capital investment in the system is $260,000 in present-day
dollars. The system has a useful life of 10 years and is in the MACRS (GDS) five-year property class. It is expected that the MV of the system at the end of its 10-year life will be $50,000 in present-day dollars. Annual expenses,
estimated in present-day dollars, are expected to be $6,000 per year, not including an annual property tax of 4% of the investment cost (does not inflate). Assume that the plant has a remaining life of 20 years and that replacement costs, annual expenses, and MV increase at 6% per year. If the effective income tax rate is 40%, set up a spreadsheet to determine the ATCF for the system over a 20-year period. The after-taxmarket rate of
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