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Method A Method B First cost, $ - 100,000 - 150,000 Salvage value, $ 10,000 20,000 Savings, $ per year 35,000 45,000 AOC, $ per year - 15,000 -6,000 Expected life, years 5

Method A Method B First cost, $ - 100,000 - 150,000 Salvage value, $ 10,000 20,000 Savings, $ per year 35,000 45,000 AOC, $ per year - 15,000 -6,000 Expected life, years 5

Essentials Of Investments
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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Elias wants to perform an after-tax evaluation of equivalent methods to electrostatically remove airborne particulate matter from clean rooms used to package liquid pharmaceutical products. Using the information shown, MACRS depreciation with n = 3 years, a 5-year study period, after-tax
MARR = 7% per year, a Te of 34% and a spreadsheet, he obtained the results AWA = $-2176 and AWB = $3545. Any tax effects when the equipment is salvaged were neglected. Method B is the better method.
Use classical SL depreciation with n = 5 years to select the better method. Is the decision different from that reached using MACRS?

Method A Method B First cost, $ - 100,000 - 150,000 Salvage value, $ 10,000 20,000 Savings, $ per year 35,000 45,000 AOC, $ per year - 15,000 -6,000 Expected life, years 5
Transcribed Image Text:Method A Method B First cost, $ - 100,000 - 150,000 Salvage value, $ 10,000 20,000 Savings, $ per year 35,000 45,000 AOC, $ per year - 15,000 -6,000 Expected life, years 5
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Section 179 Deduction and Modified Accelerated Cost Recovery System (MACRS) Depreciation
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