12-38 Specialty Machining, Inc. bought a new multi turer $80,000 per year. Opera
ID: 1113454 • Letter: 1
Question
12-38 Specialty Machining, Inc. bought a new multi turer $80,000 per year. Operating costs year. Follow turning center for $250,000. The machine generate new revenue of for the machine averaged $10,000 pery ing IRS regulations, the machine was depreciated using the MACRS method, with a recovery period of 7 years. The center was sold for $75,000 after 5 years of service. The company uses an after-tax MARR rate of 12% and is in the 35% tax bracket. Determine the after-tax net present worth of this asset over the 5-year service period. Contributed by Mukasa Ssemakula, Wayne State UniversityExplanation / Answer
Operating cash flow = (Revenue - operating costs - depreciation) * ( 1 - tax rate) + depreciation
The net present worth over the 5 year service period = 58003.75 / 1.121 + 66928.75 / 1.122 + 60803.75 / 1.123 + 56428.75 / 1.124 + 56437.5 / 1.125 + $ 75,000 / 1.125 - 250,000
NPW = $ 8,865.82
Year Cash outflows Cash inflows Depreciation rate Depreciation per year Operating cash flows 0 250000 1 10000 80000 14.29% 35725 58003.75 2 10000 80000 24.49% 61225 66928.75 3 10000 80000 17.49% 43725 60803.75 4 10000 80000 12.49% 31225 56428.75 5 10000 80000 8.93% or straight line 31250 56437.5Related Questions
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