Machine A Machine B Initial investment required $20,000 $12,000 Service life 6 years $5,000 3 years Salvage value Annual operating expenses Annual operating revenue Depreciation method $3,000 $4,000 $2,500 $15,000 $12,500 5-year MACRS 5-year MACRS
Machine A Machine B Initial investment required $20,000 $12,000 Service life 6 years $5,000 3 years Salvage value Annual operating expenses Annual operating revenue Depreciation method $3,000 $4,000 $2,500 $15,000 $12,500 5-year MACRS 5-year MACRS
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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Question
A firm is trying to choose between two machines to manufacture a new line of office furniture. The financial data for each machine have been compiled as follows:
The firm's marginal tax rate is 40% and uses a 15% discount rate to value the projects. Also, assume that the required service period is indefinite.
What is the
(a) 28%
(b)39%
(c) 35%
(d)43%
Transcribed Image Text:Machine A
Machine B
Initial investment required
$20,000
$12,000
Service life
6 years
$5,000
3 years
Salvage value
Annual operating expenses
Annual operating revenue
Depreciation method
$3,000
$4,000
$2,500
$15,000
$12,500
5-year MACRS
5-year MACRS
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