Homework: Ch. 9 - Cash Flow Save Score: 0 of 1 pt 1 of 2 (1 complete) HW Score:

Question

Homework: Ch. 9 - Cash Flow Save Score: 0 of 1 pt 1 of 2 (1 complete) HW Score: 0%, 0 of 2 pts Problem 10-1 (algorithmic) Question Help * A firm is considering purchasing a machine that costs $61,000. It will be used for six years, and the salvage value at that time is expected to be zero. The machine will save $42,000 per year in labor, but it will incur $14,000 in operating and maintenance costs each year. The machine will be depreciated according to five-year MACRS. The firm's tax rate is 40%, and its after-tax MARR is 10%. Should the machine be purchased? Click the icon to view the MACRS depreciation schedules. Click the icon to view the interest factors for discrete compounding when i-10% per year. The present worth of the project is s(Round to the nearest dollar) Enter your answer in the answer box and then click Check Answer. part remaining Clear All Check Answer

Explanation / Answer

Working notes:

(1) MACRS depreciation schedule as follows.

(2) Pre-tax income = Annual savings - Operating cost - Depreciation

= $42,000 - $14,000 - Depreciation = $28,000 - Depreciation

(3) After-tax income = Pre-tax income x (1 - Tax rate) = Pre-tax income x (1 - 0.4)

= Pre-tax income x 0.6

(4) After-tax cash flow (ATCF) = After-tax income + Depreciation

(5) PV factor in year 10% = (1.10)-N

Present Worth (PW) of ATCF is computed as follows.

Year Depreciation Base ($) Depreciation Rate (%) Annual Depreciation ($) (A) (B) (C) = (A) x (B) 1 61,000 20 12,200 2 61,000 32 19,520 3 61,000 19.2 11,712 4 61,000 11.52 7,027 5 61,000 11.52 7,027 6 61,000 5.76 3,514

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.