Certain new machinery used in manufacturing of motor vehicles, when placed in service, is estimated to cost $275,000. It is expected to reduce net annual operating expenses by $56,000 per year for 10 years and to have a $41,000 MV at the end of the 10th year. Assume that the firm is in the federal taxable income bracket of $335,000 to $10,000,000 and that the state income tax rate is 7.5%. State income taxes are deductible from federal taxable income. This machinery is to be depreciated using the MACRS (GDS). Develop the BTCFs and ATCFs and compute for the respective PWs at EOY 0 using an MARR of 12%.
Certain new machinery used in manufacturing of motor vehicles, when placed in service, is estimated to cost $275,000. It is expected to reduce net annual operating expenses by $56,000 per year for 10 years and to have a $41,000 MV at the end of the 10th year. Assume that the firm is in the federal taxable income bracket of $335,000 to $10,000,000 and that the state income tax rate is 7.5%. State income taxes are deductible from federal taxable income. This machinery is to be depreciated using the MACRS (GDS). Develop the BTCFs and ATCFs and compute for the respective PWs at EOY 0 using an MARR of 12%.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Certain new machinery used in manufacturing of motor vehicles, when placed in service, is estimated to cost $275,000. It is expected to reduce net annual operating expenses by $56,000 per year for 10 years and to have a $41,000 MV at the end of the 10th year. Assume that the firm is in the federal taxable income bracket of $335,000 to $10,000,000 and that the state income tax rate is 7.5%. State income taxes are deductible from federal taxable income. This machinery is to be
![Certain new machinery used in manufacturing of motor vehicles, when placed in service, is estimated to cost $275,000. It is expected to
reduce net annual operating expenses by $56,000 per year for 10 years and to have a $41,000 MV at the end of the 10th year. Assume
that the firm is in the federal taxable income bracket of $335,000 to $10,000,000 and that the state income tax rate is 7.5%. State income
taxes are deductible from federal taxable income. This machinery is to be depreciated using the MACRS (GDS). Develop the BTCFS and
ATCFS and compute for the respective PWs at EOY O using an MARR of 12%.
Before-Tax Cash
Flow ($)
Cash Flow for Income After-Tax Cash Flow
Taxes ($)
EOY
Depreciation ($)
Taxable Income ($)
($)
[1]
1
[2]
2
[3]
3
[4]
14
[5]
5
6
[6]
17
8
[7]
19
10
[8]
PW(0) using
MARR
[9]
[10]
Based on Before-Tax Analysis, is this machinery worth investing in? {"YES"/"NO"}
Based on After-Tax Analysis, is this machinery worth investing in? {"YES"/"NO"}
[11]
[12]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F3813762c-59a4-41a4-841b-409a5ed4d608%2F1023df3e-84de-4297-8c8e-e64d4b7edeb1%2Ft8koaer_processed.png&w=3840&q=75)
Transcribed Image Text:Certain new machinery used in manufacturing of motor vehicles, when placed in service, is estimated to cost $275,000. It is expected to
reduce net annual operating expenses by $56,000 per year for 10 years and to have a $41,000 MV at the end of the 10th year. Assume
that the firm is in the federal taxable income bracket of $335,000 to $10,000,000 and that the state income tax rate is 7.5%. State income
taxes are deductible from federal taxable income. This machinery is to be depreciated using the MACRS (GDS). Develop the BTCFS and
ATCFS and compute for the respective PWs at EOY O using an MARR of 12%.
Before-Tax Cash
Flow ($)
Cash Flow for Income After-Tax Cash Flow
Taxes ($)
EOY
Depreciation ($)
Taxable Income ($)
($)
[1]
1
[2]
2
[3]
3
[4]
14
[5]
5
6
[6]
17
8
[7]
19
10
[8]
PW(0) using
MARR
[9]
[10]
Based on Before-Tax Analysis, is this machinery worth investing in? {"YES"/"NO"}
Based on After-Tax Analysis, is this machinery worth investing in? {"YES"/"NO"}
[11]
[12]
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 5 steps with 10 images
Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education