ENGINEERING ECONOMIC ENHANCED EBOOK
14th Edition
ISBN: 9780190931940
Author: NEWNAN
Publisher: OXF
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Chapter 12, Problem 58P
To determine
To find: The value of after-tax
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MUST USE ONLY EXCEL SPREADSHEET FOR THIS PROBLEM
A corporation with $7 million in annual taxable income and no state tax is considering two
alternatives:
Year
0
1-10
11-20
Before-Tax Cash Flow ($1000)
Alt 1
Alt 2
-10,000
4,500
0
-20,000
4,500
4,500
Both alternatives will be depreciated by 40% bonus depreciation taken in year 0 plus 10-year
MACRS depreciation. Neither alternative is to be replaced at the end of its useful life. If the
corporation has a minimum attractive rate of return of 10% after taxes, which alternative
should it choose? Solve the problem by:
(a) Present worth analysis
(b) Annual cash flow analysis
(c) Rate of return analysis
(d) Future worth analysis
(e) Benefit-cost ratio analysis
Domestic
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S
Chapter 12 Solutions
ENGINEERING ECONOMIC ENHANCED EBOOK
Ch. 12 - Prob. 1QTCCh. 12 - Prob. 2QTCCh. 12 - Prob. 3QTCCh. 12 - Prob. 1PCh. 12 - Prob. 2PCh. 12 - Prob. 3PCh. 12 - Prob. 4PCh. 12 - Prob. 5PCh. 12 - Prob. 6PCh. 12 - Prob. 7P
Ch. 12 - Prob. 8PCh. 12 - Prob. 9PCh. 12 - Prob. 10PCh. 12 - Prob. 11PCh. 12 - Prob. 12PCh. 12 - Prob. 13PCh. 12 - Prob. 14PCh. 12 - Prob. 15PCh. 12 - Prob. 16PCh. 12 - Prob. 17PCh. 12 - Prob. 18PCh. 12 - Prob. 19PCh. 12 - Prob. 20PCh. 12 - Prob. 21PCh. 12 - Prob. 22PCh. 12 - Prob. 23PCh. 12 - Prob. 24PCh. 12 - Prob. 25PCh. 12 - Prob. 26PCh. 12 - Prob. 27PCh. 12 - Prob. 28PCh. 12 - Prob. 29PCh. 12 - Prob. 30PCh. 12 - Prob. 31PCh. 12 - Prob. 32PCh. 12 - Prob. 33PCh. 12 - Prob. 34PCh. 12 - Prob. 35PCh. 12 - Prob. 36PCh. 12 - Prob. 37PCh. 12 - Prob. 38PCh. 12 - Prob. 39PCh. 12 - Prob. 40PCh. 12 - Prob. 41PCh. 12 - Prob. 42PCh. 12 - Prob. 43PCh. 12 - Prob. 44PCh. 12 - Prob. 45PCh. 12 - Prob. 46PCh. 12 - Prob. 47PCh. 12 - Prob. 48PCh. 12 - Prob. 49PCh. 12 - Prob. 50PCh. 12 - Prob. 51PCh. 12 - Prob. 52PCh. 12 - Prob. 53PCh. 12 - Prob. 54PCh. 12 - Prob. 55PCh. 12 - Prob. 56PCh. 12 - Prob. 57PCh. 12 - Prob. 58PCh. 12 - Prob. 59PCh. 12 - Prob. 60PCh. 12 - Prob. 61PCh. 12 - Prob. 62PCh. 12 - Prob. 63PCh. 12 - Prob. 64PCh. 12 - Prob. 65P
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- Consider the following financial information for an engineer: Age: 25Status: Single, no childrenGross Income: $54,000 401k investment: $4000Residential status: RentingTotal eligible itemized deductions: $3000 for charitable donations What is the taxable income? (IF you need to use them, assume the standard deduction for single is $12000 and married is $24000).arrow_forwardA firm must decide between two silicon layer chip designs from Intel. Theireffective income tax rate is 40%, and Straight Line depreciation method is used. If the desired after-tax return on investment is 10% per year, which design should be chosen? State your assumptions. Design A Design BCapital Investment $1,000,000 $2,000,000Salvage Value at end of life $1,000,000 $1,100,000Annual revenue less expenses $200,000 $400,000Useful Life 7years 6 yearsarrow_forwardMachinery for an assembly line has a cost basis of $150,000 and an expected salvage of $25,000. It is not subject to special limitations for bonus depreciation. How much bonus depreciation was, is, or will be allowed (a) in 2014? (b) in 2018? (c) in 2024? (d) in 2026?arrow_forward
- Updated class practice problem to include state tax and proper consideration of asset disposal (1/2 depreciation and need BV to determine recapture or loss) GIVENS: Initial Cost $150,000 Annual net saving $50,000 state Useful life Salvage value $30,000 6 years federal 6.50% 21.0% tax rate -BTCF-D TI tax rate BTCF-Income Tax Year Taxable Income BTCF MACRS Depreciation ATCF Income Tax 0 ($150,000) ($150,000) 1 50,000 20% ($30,000) $20,000 $4,618 45,382 2 50,000 32% ($48,000) $2,000 $462 49,538 3456 50,000 19.20% ($28,800) $21,200 $4,895 45,105 4 50,000 11.52% ($17,280) $32,720 $7,555 42,445 50,000 11.52% ($17,280) $32,720 $7,555 42,445 50,000 2.88% disposal 30,000 BV= ($4,320) $4,320 $45,680 $25,680 $5,930 $10,548 63,523 includes 6 and disposal recapture ROR Question 1 What is the ATCF ROR when state taxes and asset disposal are properly considered?arrow_forwardN1 New equipment costing $35,000 has a 5 -year life and no salvage value. Benefits are expected to be $9000 per year. The equipment qualifies for 100% bonus depreciation. The firm has a 28% combined marginal income tax rate. What is the after-tax rate of return?arrow_forwardFirst cost of equipment = $200,000 Market value at the end of year 6 = $10,000 MACRS depreciation is used. The equipment is a 5-year property. Incremental income-tax rate for the company = 35% Year 0 1 2 3 4 5 6 BT-CF in $ -200K 60K 63K 66K 69K 72K 75K Market value = 10K The first-year after tax-cash flow is equal to _____________.arrow_forward
- How can we Determine the after-tax cash flows?arrow_forwardNew equipment costing $30,000 has a 5-year life and no salvage value. Benefits are expected to be $8000 per year. The equipment qualifies for 100% bonus depreciation. The firm has a 28% combined marginal income tax rate. What is the after-tax rate of return?arrow_forwardAn asset with a first cost of $9000 is depreciated using 5-year MACRS recovery. The CFBT is estimated at $10,000 for the first 4 years and $5000 thereafter as long as the asset is retained. The effective tax rate is 40%, and money is worth 10% per year. In present worth dollars, how much of the cash flow generated by the asset over its recovery period is lost to taxes?arrow_forward
- An asset costs $150,000 and has a salvage value of $15,000 after 10 years.What is the depreciation charge for the 4th year, and what is the book value atthe end of the 8th year with(a)Straight-line depreciation?(b)Double declining balance depreciation?arrow_forward7arrow_forwardcomplete solution, thank youarrow_forward
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