Engineering Economy (17th Edition)
17th Edition
ISBN: 9780134870069
Author: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 7, Problem 34P
Refer to Problem 6-79. The alternatives all have a MACRS (GDS) property class of three years. If the effective income tax rate is 25% and the after-tax MARR = (1 − 0.4) (12%) = 7.2% per year, which alternative should be recommended? Is this the same recommendation you made when the alternatives were analyzed on a before-tax basis? (7.10)
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
In a $ 80,000 investment project, it is estimated that annual after-tax net cash flows of $ 20,000 will be received over 5 years. Estimate the range of the Internal Rate of Return for this project Here are the options:
- It has no IRR
- [0,5%)
- Greater than 10%
- [5%,10%)
Suppose you are considering an investment
project that requires $800.000, has a six-year life,
and has a salvage value of $100,000. Sales volume
is projected to be 65,000 units per year. Price per
unit is $63, variable cost per unit is $42, and fixed
costs are $532,000 per year. The depreciation
method is a five-year SL and assume MARR 10%.
(a) Determine the break-even sales volume. (b)
Calculate the cash flows of the base case over six
years and its NPW. (c) lf the sales price per unit
increases to $400, what is the required break-even
volume? (d) Suppose the projections given for
price, sales volume, variable costs, and fixed costs
are all accurate to within + 15%. What would be
the NPW figures of the best-case and worst-case
scenarios?
How do you calculate the PVIFA for the equation: EAC = NPV / Annutiy factor
How would you use the financial calculator to solve for EAC and PVIFA?
You are evaluating two different silicon wafer milling machines. The Techron I costs $270,000, has a three-year life, and has pre-tax operating costs of $69,000 per year. The Techron II costs $475,000, has a five-year life, and has pre-tax operating costs of $36,000 per year. Both milling machines are in Class 8 (CCA rate of 20 percent per year). Assume a salvage value of $45,000. If your tax rate is 35 percent and your discount rate is 10 percent, compute the EAC for both machines. Which do you prefer? Why?
Chapter 7 Solutions
Engineering Economy (17th Edition)
Ch. 7 - How are depreciation deductions different from...Ch. 7 - Prob. 2PCh. 7 - Explain the difference between real and personal...Ch. 7 - Prob. 4PCh. 7 - Prob. 5PCh. 7 - Prob. 6PCh. 7 - Prob. 7PCh. 7 - Prob. 8PCh. 7 - Prob. 9PCh. 7 - Prob. 10P
Ch. 7 - Prob. 11PCh. 7 - Prob. 12PCh. 7 - Prob. 13PCh. 7 - Prob. 14PCh. 7 - A manufacturer of aerospace products purchased...Ch. 7 - Prob. 16PCh. 7 - Prob. 17PCh. 7 - Prob. 18PCh. 7 - Prob. 19PCh. 7 - Prob. 20PCh. 7 - Prob. 21PCh. 7 - Prob. 22PCh. 7 - Prob. 23PCh. 7 - Prob. 24PCh. 7 - Prob. 25PCh. 7 - Prob. 26PCh. 7 - Prob. 27PCh. 7 - Prob. 28PCh. 7 - Prob. 29PCh. 7 - Prob. 30PCh. 7 - Prob. 31PCh. 7 - Prob. 32PCh. 7 - Prob. 33PCh. 7 - Refer to Problem 6-79. The alternatives all have a...Ch. 7 - Prob. 35PCh. 7 - Prob. 36PCh. 7 - Prob. 37PCh. 7 - Prob. 38PCh. 7 - Prob. 39PCh. 7 - Prob. 40PCh. 7 - Prob. 41PCh. 7 - Prob. 42PCh. 7 - Prob. 43PCh. 7 - Prob. 44PCh. 7 - Prob. 45PCh. 7 - Prob. 46PCh. 7 - AMT, Inc., is considering the purchase of a...Ch. 7 - Prob. 48PCh. 7 - Prob. 49PCh. 7 - Prob. 50PCh. 7 - Prob. 51PCh. 7 - Prob. 52PCh. 7 - Determine the after-tax yield (i.e., IRR on the...Ch. 7 - A 529-state-approved Individual Retirement Account...Ch. 7 - Prob. 55PCh. 7 - Prob. 56PCh. 7 - Prob. 57SECh. 7 - Prob. 58SECh. 7 - Prob. 59SECh. 7 - Refer to the chapter opener and Example 7-14. As...Ch. 7 - Prob. 61FECh. 7 - The Parkview Hospital is considering the purchase...Ch. 7 - Prob. 63FECh. 7 - Prob. 64FECh. 7 - Prob. 65FECh. 7 - Prob. 66FECh. 7 - Prob. 67FECh. 7 - Prob. 68FECh. 7 - Prob. 69FECh. 7 - Prob. 70FECh. 7 - Prob. 71FECh. 7 - Prob. 72FECh. 7 - Prob. 73FECh. 7 - Prob. 74FECh. 7 - Prob. 75FECh. 7 - If the federal income tax rate is 35% and the...Ch. 7 - Prob. 77FECh. 7 - Acme Manufacturing makes their preliminary...Ch. 7 - Prob. 79FECh. 7 - Prob. 80FECh. 7 - Prob. 81FECh. 7 - Prob. 82FECh. 7 - Prob. 83FECh. 7 - Prob. 84FECh. 7 - Two insulation thickness alternatives have been...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Similar questions
- Problem 1: An investment of P 250,000 can be made in a project that will produce a uniform annual revenue of P 192,800 for 5 years and then have a salvage value of 10% of the first cost. Operation and maintenance will be P 72,000 per year. Taxes and insurance will be 4% of the first cost per year. The company expects capital to earn 20% before income taxes. Show whether or not the investment is justified economically using 1. PW method 2. FW method 3. AW method 4. ROR methodarrow_forwardA company is going to buy a new machine for manufacturing its products. Three machines are available. Data is as follows: Money is worth 17% before taxes to the company. Which machine should be chosen? Use RORarrow_forwardAn asset with a fixed investment cost of $90,000 is depreciated over an 8-year period. It is expected to have Sg = $30,000. MARR = 12% (My answers approximate to the nearest dollar) Using the Double DB method, what is D7? Within $10 of 5049 3365 8009 2670 4004 None of the abovearrow_forward
- has a cost of $53,600, 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%. Based upon the use of MACRS-GDS depreciation, compare the AW of each alternative.AWA = $enter a dollar amount AWB = $enter a dollar amount Which should be selected? What must be Investment B's cost of operating expenses for these two investments to be equivalent? $enter a dollar amountarrow_forwardPeachtree Construction Company, a highway contractor, is considering the purchase of a new trench excavator that costs 300000 and can dig a 3-foot-wide trench at the rate of 16 feet per hour. The contractor gets paid according to the usage of the equipment, 100 per hour. The expected average annual usage is 500 hours, and maintenance and operating costs will be 10 per hour. The contractor will depreciate the equipment by using a five-year MACRS, units-of-production method. At the end of five years, the excavator will be sold for 100000. Assuming the contractor’s marginal tax rate is 25% per year, determine the annual after-tax cash flow. In excel.arrow_forwardArt Neuner, an investor in real estate, bought an office condominium. The market value of the condo was $260,000 with a 80% assessment rate. Art feels that his return should be 10% per month on his investment after all expenses. The tax rate is $32.50 per $1,000. Art estimates it will cost $275 per month to cover general repairs, insurance, and so on. He pays a $140 condo fee per month. All utilities and heat are the responsibility of the tenant. Calculate the monthly rent for Art. (Round your intermediate calculations and final answer to the nearest cent.)arrow_forward
- Nonearrow_forwardAn iron ore of 50x10^6 ton was produced during 15 years and has been sold for $100 per ton Estimate the required investment if 0.4 turnover ratio was considered. If produced ton costs $28, what would be the net present value of the project when 8% safe rate and 15% rate of return assuming that the Investment will be depreciated within 15 years?arrow_forwardThe Industrial Engineering at Shocker Communications has devised one alternative method involving new tooling for a job being machined in the shop. Data on the present and proposed method are shown in the table below. What production quantity would be required for the alternative method to be more economical? Assume the base pay rate is $10.0 per hour. The estimated production quantity is 15040 per year. The fixtures are capitalized and depreciated in 4 years. Round your answer to the closest integer. Method Standard Time (min) Fixture Cost Tool Cost Average Tool Life Present 10,000 0.856 0 $6 Method pieces 32845 Alternative 0.791 $930 $20 piecesarrow_forward
- Perform a present worth (PW)-based evaluation of the two alternatives below using a spreadsheet. The after-tax minimum acceptable rate of return (MARR) is 8% per year, Modified Accelerated Cost Recovery System (MACRS) depreciation applies, and Te = 40%. The (GI - OE) estimate is made for the first 3 years; it is zero in year 4 when each asset is sold. Alternative X Y First Cost, $ –8,000 –13,000 Salvage Value, Year 4, $ 0 2,000 GI-OE, $ per Year 3,500 5,000 Recovery Period, Years 3 3 The PW for alternative X is determined to be $ . The PW for alternative Y is determined to be $ . Alternative _______ is selected.arrow_forwardNeed some assistance with thisarrow_forwardAn $80,000 baling machine for recycled paper was purchased by the XYZ company two years ago. The current MV of the machine is $50,000, and it can be kept in service for seven more years. MARR is 12% per year and the projected net annual receipts (revenues less expenses) and end-of-year market values for the machine are shown below. When is the best time for the company to abandon this project? END OF YEAR 1 2 3 4 5 6 7 Net annual receipts $20,000 $20,000 $18,000 $15,000 $12,000 $6,000 $3,000 Market value 40,000 32,000 25,000 20,000 15,000 10,000 5,000arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Managerial Economics: Applications, Strategies an...EconomicsISBN:9781305506381Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. HarrisPublisher:Cengage Learning
Managerial Economics: Applications, Strategies an...
Economics
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:Cengage Learning
DATA GEMS: How to Access Income Data Tables and Reports From the CPS ASEC; Author: U.S. Census Bureau;https://www.youtube.com/watch?v=BWpVC-Clczw;License: Standard Youtube License