The profitable Palmer Golf Cart Corp. is considering investing $300,000 in special tools for some of the plastic golf cart components. The present golf cart model will continue to be manufactured and sold for five years, after which a new cart design will be needed, together with a different set of special tools. (The residual value of the current investment will be zero). The saving in manufacturing costs, owing to the special tools, is estimated to be $150,000 per year for five years. Assume MACRS THREE-YEAR depreciation for the special tools and a 22.58% combined income tax rate. (a) Find the after-tax rate of return and after-tax payback period for this investment. (b) Based on a MARR of 12%, is this a desirable investment?
The profitable Palmer Golf Cart Corp. is considering investing $300,000 in special tools for some of the plastic golf cart components. The present golf cart model will continue to be manufactured and sold for five years, after which a new cart design will be needed, together with a different set of special tools. (The residual value of the current investment will be zero).
The saving in
(a) Find the after-tax
(b) Based on a MARR of 12%, is this a desirable investment?
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