Save K Nordique Fab is an Arizona company dedicated to circuit board design and fabrication. It has just acquired new workstations and modeling software for its four "Valley of the Sun" design facilities, at a cost of $420,000 per site. This cost includes the hardware, software, transportation, and installation costs. Additional software training has been purchased at a cost of $22,000 per site. The estimated MV for each system during the fourth year is expected to be 5% of the system cost, at which time the systems will all be sold. The company believes that use of the new systems will enhance their circuit design business, resulting in a total increase in annual income of $1,090,000. The engineering design manager wants to determine the tax implications of this purchase. He estimates that annual operating and maintenance costs on the systems will be approximately $230,000 (all sites combined). The company's marginal effective tax rate is 29% and the MACRS depreciation method (with a five year GDS recovery period) will be used. Determine the after-tax cash flows for this project. If the after-tax MARR is 22% per year, would you recommend this investment? Click the icon to view the partial listing of depreciable assets used in business. Click the icon to view the GDS Recovery Rates (rk). Click the icon to view the interest and annuity table for discrete compounding when the MARR is 22% per year. Determine the after-tax cash flows for each year. (Round to the nearest dollar.) EOY ATCF, S 0 Compound Amount Present Discrete Compounding; i=22% Single Payment Compound Amount Uniform Series Sinking Present Factor Worth Factor Factor Worth Factor Fund Factor To Find F To Find P To Find F To Find P To Find A Capital Recovery Factor To Find A Given P Given F Given A Given A Given F Given P N FIP PIE FIA PLA AIF AP 1 1.2200 0.8197 1.0000 0.8197 1.0000 1.2200 2 1.4884 0.6719 2.2200 1.4915 0.4505 0.6705 3 1.8158 0.5507 3.7084 2.0422 0.2697 0.4897 4 2.2153 0.4514 5.5242 2.4936 0.1810 0.4010 5 2.7027 0.3700 7.7396 2.8636 0.1292 0.3492 MACRS Class Lives and Recovery Periods Print Done Asset Class Recovery Periods GDS Recovery Rates (r) for the Six Personal Property Classes Descriptions of Assets Class Life GDS ADS 00.11 Office furniture and equipment Recovery Period (and Property Class) 10 Year 7 10 00.12 3-year Information systems, including computers 5-year 7-year 10-year 15-year 6 5 5 20-year 1 0.3333 00.22 Automobiles, taxis 0.2000 0.1429 0.1000 0.0500 3 5 5 0.0375 2 0.4445 00.23 Buses 0.3200 0.2449 0.1800 9 0.0950 5 9 0.0722 00.241 Light general purpose trucks 0.1481 0.1920 0.1749 4 5 5 0.1440 0.0855 0.0668 00.242 Heavy general purpose trucks 0.0741 0.1152 0.1249 6 5 6 0.1152 0.0770 0.0618 00.26 Tractor units for use over the road 0.1152 4 3 4 0.0893 0.0922 0.0693 0.0571 01.1 Agriculture 10 7 10 0.0576 0.0892 0.0737 0.0623 0.0528 10.0 Mining 10 7 10 0.0893 0.0655 0.0590 0.0489 13.2 Production of petroleum and natural gas 14 7 14 0.0446 0.0655 0.0590 0.0452 13.3 Petroleum refining 16 10 16 0.0656 0.0591 0.0447 15.0 Construction 6 5 6 0.0655 0.0590 0.0447 22.3 Manufacture of carpets 9 5 9 11 0.0328 0.0591 0.0446 24.4 Manufacture of wood products and furniture 10 7 10 12 0.0590 0.0446 28.0 Manufacture of chemicals and allied products 9.5 5 9.5 13 30.1 Manufacture of rubber products 14 7 14 0.0591 0.0446 14 32.2 Manufacture of cement 20 15 34.0 Manufacture of fabricated metal products 12 36.0 Manufacture of electronic components, products, and systems 6 37.11 Manufacture of motor vehicles 12 37.2 Manufacture of aerospace products 10 48.12 Telephone central office equipment 18 49.13 49.21 Electric utility steam production plant Gas utility distribution facilities 13 28 35 10 STSTTO227 0.0590 0.0446 20 15 12 0.0591 0.0446 5 6 16 0.0295 0.0446 12 17 0.0446 10 18 0.0446 10 18 19 0.0446 20 28 20 0.0446 20 35 21 0.0223 10 79.0 Recreation

Save K Nordique Fab is an Arizona company dedicated to circuit board design and fabrication. It has just acquired new workstations and modeling software for its four "Valley of the Sun" design facilities, at a cost of $420,000 per site. This cost includes the hardware, software, transportation, and installation costs. Additional software training has been purchased at a cost of $22,000 per site. The estimated MV for each system during the fourth year is expected to be 5% of the system cost, at which time the systems will all be sold. The company believes that use of the new systems will enhance their circuit design business, resulting in a total increase in annual income of $1,090,000. The engineering design manager wants to determine the tax implications of this purchase. He estimates that annual operating and maintenance costs on the systems will be approximately $230,000 (all sites combined). The company's marginal effective tax rate is 29% and the MACRS depreciation method (with a five year GDS recovery period) will be used. Determine the after-tax cash flows for this project. If the after-tax MARR is 22% per year, would you recommend this investment? Click the icon to view the partial listing of depreciable assets used in business. Click the icon to view the GDS Recovery Rates (rk). Click the icon to view the interest and annuity table for discrete compounding when the MARR is 22% per year. Determine the after-tax cash flows for each year. (Round to the nearest dollar.) EOY ATCF, S 0 Compound Amount Present Discrete Compounding; i=22% Single Payment Compound Amount Uniform Series Sinking Present Factor Worth Factor Factor Worth Factor Fund Factor To Find F To Find P To Find F To Find P To Find A Capital Recovery Factor To Find A Given P Given F Given A Given A Given F Given P N FIP PIE FIA PLA AIF AP 1 1.2200 0.8197 1.0000 0.8197 1.0000 1.2200 2 1.4884 0.6719 2.2200 1.4915 0.4505 0.6705 3 1.8158 0.5507 3.7084 2.0422 0.2697 0.4897 4 2.2153 0.4514 5.5242 2.4936 0.1810 0.4010 5 2.7027 0.3700 7.7396 2.8636 0.1292 0.3492 MACRS Class Lives and Recovery Periods Print Done Asset Class Recovery Periods GDS Recovery Rates (r) for the Six Personal Property Classes Descriptions of Assets Class Life GDS ADS 00.11 Office furniture and equipment Recovery Period (and Property Class) 10 Year 7 10 00.12 3-year Information systems, including computers 5-year 7-year 10-year 15-year 6 5 5 20-year 1 0.3333 00.22 Automobiles, taxis 0.2000 0.1429 0.1000 0.0500 3 5 5 0.0375 2 0.4445 00.23 Buses 0.3200 0.2449 0.1800 9 0.0950 5 9 0.0722 00.241 Light general purpose trucks 0.1481 0.1920 0.1749 4 5 5 0.1440 0.0855 0.0668 00.242 Heavy general purpose trucks 0.0741 0.1152 0.1249 6 5 6 0.1152 0.0770 0.0618 00.26 Tractor units for use over the road 0.1152 4 3 4 0.0893 0.0922 0.0693 0.0571 01.1 Agriculture 10 7 10 0.0576 0.0892 0.0737 0.0623 0.0528 10.0 Mining 10 7 10 0.0893 0.0655 0.0590 0.0489 13.2 Production of petroleum and natural gas 14 7 14 0.0446 0.0655 0.0590 0.0452 13.3 Petroleum refining 16 10 16 0.0656 0.0591 0.0447 15.0 Construction 6 5 6 0.0655 0.0590 0.0447 22.3 Manufacture of carpets 9 5 9 11 0.0328 0.0591 0.0446 24.4 Manufacture of wood products and furniture 10 7 10 12 0.0590 0.0446 28.0 Manufacture of chemicals and allied products 9.5 5 9.5 13 30.1 Manufacture of rubber products 14 7 14 0.0591 0.0446 14 32.2 Manufacture of cement 20 15 34.0 Manufacture of fabricated metal products 12 36.0 Manufacture of electronic components, products, and systems 6 37.11 Manufacture of motor vehicles 12 37.2 Manufacture of aerospace products 10 48.12 Telephone central office equipment 18 49.13 49.21 Electric utility steam production plant Gas utility distribution facilities 13 28 35 10 STSTTO227 0.0590 0.0446 20 15 12 0.0591 0.0446 5 6 16 0.0295 0.0446 12 17 0.0446 10 18 0.0446 10 18 19 0.0446 20 28 20 0.0446 20 35 21 0.0223 10 79.0 Recreation

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter13: Capital, Interest, Entrepreneurship, And Corporate Finance

Section: Chapter Questions

Problem 4.8P

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