Milliken uses a digitally controlled dyer for placing intricate and integrated patterns on manufactured carpet squ for home and commercial use. It is purchased for $400,000. It is expected to last 8years and have a salvage valt $30,000. Increased net income due to this dyer is S95,000 per year. Milliken's tax rateis 40 percent, and the tax MARR is 12 percent. Develop tables using a spreadsheet to determine the ATCF for each year and the afte PW, AW, and IRR after 8 years. Use 5- years class depreciation for MACRS
Milliken uses a digitally controlled dyer for placing intricate and integrated patterns on manufactured carpet squ for home and commercial use. It is purchased for $400,000. It is expected to last 8years and have a salvage valt $30,000. Increased net income due to this dyer is S95,000 per year. Milliken's tax rateis 40 percent, and the tax MARR is 12 percent. Develop tables using a spreadsheet to determine the ATCF for each year and the afte PW, AW, and IRR after 8 years. Use 5- years class depreciation for MACRS
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:Milliken uses a digitally controlled dyer for placing intricate and integrated patterns on manufactured carpet squares for home and commercial use. It is purchased for $400,000. It is expected to last 8 years and have a salvage value of $30,000. Increased net income due to this dyer is $95,000 per year. Milliken’s tax rate is 40 percent, and the after-tax MARR is 12 percent. Develop tables using a spreadsheet to determine the ATCF for each year and the after-tax PW, AW, and IRR after 8 years. Use 5-year class depreciation for MACRS.
Expert Solution
Step 1
To find the Present worth , Annual Worth & Internal Rate of Return we first compute the After Tax Cash flow using the following steps :
- Construct an yearly cash flow with initial cost in year (0) , annual income in year (1 to 7 ) & Annual Income plus salvage value in year 8 .
- Then find the Modified Accelerated rate of depreciation , which is the declining depreciation (200% )with given class of 5 years . We get Depreciation factor = 200% of 1/8 = 25% .
- We compute cash flow after depreciation where :
- year 1 depreciation = 25% of first cost = 1,00,000
- year 2 depreciation = 25% of Accumulated Depreciation = 25%(400,000 - 100,000)
- year 3 depreciation = 25% ( 400,000 - 100,000 - 75000) and so on ..
- Then we compute after tax cash flows , which by subtracting 25% from the all the positive remaining cash flows .
- Then we compute the PW , AW , IRR
Step by step
Solved in 2 steps with 1 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