Answered: Do an after-tax present worth analysis…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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VML Industries has need of specialized yarn manufacturing equipment for operations over the next 3 years. The firm could buy the machinery for $95,000 and depreciate it using MACRS. Annual maintenance would be $7500, and it would have a salvage value of $25,000 after 3 years. Another alternative would be to lease the same machine for $45,000 per year on an “all costs” inclusive lease (maintenance costs included in lease payment). These lease payments are due at the beginning of each year. VML Industries uses an after-tax MARR of 18% and a combined tax rate of 28%. Do an after-tax present worth analysis to determine which option is preferred.

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