Problem 17.049: Calculate the after-tax AW of two alternatives A European candy manufacturing plant manager must select a new irradiation system to ensure the safety of specific ingredients, while being economical. The two alternatives available have the following estimates: System First Cost, $ CFBT, $ per Year Life, Years A -115,000 60,000 3 B -70,000 20,000 5 The company is in the 35% tax bracket and assumes classical straight line depreciation for alternative comparisons performed at an after-tax minimum acceptable rate of return (MARR) of 7% per year. A salvage value of zero is used when depreciation is calculated; however, system B can be sold after 5 years for an estimated 20% of its first cost. System A has no anticipated salvage value. Determine which is more economical using an annual worth (AW) analysis worked by hand. The annual worth analysis for system A is determined to be $ 8590.16 The annual worth analysis for system B is determined to be $ -4284.96 System A is selected.
Problem 17.049: Calculate the after-tax AW of two alternatives A European candy manufacturing plant manager must select a new irradiation system to ensure the safety of specific ingredients, while being economical. The two alternatives available have the following estimates: System First Cost, $ CFBT, $ per Year Life, Years A -115,000 60,000 3 B -70,000 20,000 5 The company is in the 35% tax bracket and assumes classical straight line depreciation for alternative comparisons performed at an after-tax minimum acceptable rate of return (MARR) of 7% per year. A salvage value of zero is used when depreciation is calculated; however, system B can be sold after 5 years for an estimated 20% of its first cost. System A has no anticipated salvage value. Determine which is more economical using an annual worth (AW) analysis worked by hand. The annual worth analysis for system A is determined to be $ 8590.16 The annual worth analysis for system B is determined to be $ -4284.96 System A is selected.
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
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Transcribed Image Text:Problem 17.049: Calculate the after-tax AW of two alternatives
A European candy manufacturing plant manager must select a new irradiation system to ensure the safety of specific ingredients,
while being economical. The two alternatives available have the following estimates:
System
First Cost, $
CFBT, $ per Year
Life, Years
A
-115,000
60,000
3
B
-70,000
20,000
5
The company is in the 35% tax bracket and assumes classical straight line depreciation for alternative comparisons performed at an
after-tax minimum acceptable rate of return (MARR) of 7% per year. A salvage value of zero is used when depreciation is calculated;
however, system B can be sold after 5 years for an estimated 20% of its first cost. System A has no anticipated salvage value.
Determine which is more economical using an annual worth (AW) analysis worked by hand.
The annual worth analysis for system A is determined to be $ 8590.16
The annual worth analysis for system B is determined to be $ -4284.96
System A
is selected.
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