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
icon
Related questions
Question

A5

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.
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.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 7 steps

Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education