Two investments involving a virtual mold apparatus for producing dental crowns qualify for different property classes. Investment A has a cost of $56,100, lasts 9 years with no salvage value, and costs $150,000 per year in operating expenses. It is in the 3-year property class. Investment B has a cost of $84.500.00, lasts 9 years with no salvage value, and costs $125,000 per year. Investment B, however, is in the 7-year property class. The company marginal tax rate is 25%, and MARR is an after-tax 10%. a. Based upon the use of MACRS-GDS depreciation, compare the AW of each alternative. AWA $ AWB - $ Which should be selected? (Investment A; Investment B) Investment B
Two investments involving a virtual mold apparatus for producing dental crowns qualify for different property classes. Investment A has a cost of $56,100, lasts 9 years with no salvage value, and costs $150,000 per year in operating expenses. It is in the 3-year property class. Investment B has a cost of $84.500.00, lasts 9 years with no salvage value, and costs $125,000 per year. Investment B, however, is in the 7-year property class. The company marginal tax rate is 25%, and MARR is an after-tax 10%. a. Based upon the use of MACRS-GDS depreciation, compare the AW of each alternative. AWA $ AWB - $ Which should be selected? (Investment A; Investment B) Investment B
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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Transcribed Image Text:Two investments involving a virtual mold apparatus for producing dental crowns qualify for different property classes. Investment A
has a cost of $56,100, lasts 9 years with no salvage value, and costs $150,000 per year in operating expenses. It is in the 3-year
property class. Investment B has a cost of $84,500.00, lasts 9 years with no salvage value, and costs $125,000 per year. Investment B,
however, is in the 7-year property class. The company marginal tax rate is 25%, and MARR is an after-tax 10%.
a. Based upon the use of MACRS-GDS depreciation, compare the AW of each alternative.
AWA=$
AWB = $
Which should be selected? (Investment A; Investment B) Investment B
b. What must be Investment B's cost of operating expenses for these two investments to be equivalent? $
Round your answer to 2 decimal places. The tolerance is ± 10.
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