Agrigrow is to purchase a tractor for over-the-road hauling for $90,000. It is e

Question

Agrigrow is to purchase a tractor for over-the-road hauling for $90,000. It is expected to be of use to the company for 6 years, after which it has a salvage value for $4,000. Transportation cost savings are expected to be $63,000 per year, including fuel, maintenance, insurance, and the like. The company's marginal tax rate is 40 percent, and MARR is 10 percent on after-tax cash flows. Suppose that, to Agrigrow's surprise they dispose of the tractor at the end of the fourth year for $6,000. Develop tables to determine the ATCF for each year after tax PW, AW, and IRR after only 4 years.

Explanation / Answer

Hi, If you like my answer rate me lifesaver first...that way only I can earn points. Thanks Savings = $63000 Depreciation each year = 14333.33 Net income each year after tax= (savings - depreciation )* (1-tax) = $29200 After tax cash flow each year = net income + depreciation = $43533.33 At the end of 4 year after tax cash flow = $43533.33 + 6000 * (1-0.6) = $47133.33 IRR = 34%

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