Problem 10-1 (algorithmic) EQuestion Help A fim is considering purchasing a mach
ID: 2572169 • Letter: P
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Problem 10-1 (algorithmic) EQuestion Help A fim is considering purchasing a machine that costs $60,000. It will be used for six years, and the salvage value at that time is expected to be zero. The machine will save $36,000 per year in labor, but it will incur $12,000 in operating and maintenanco costs each year. The machine will be depreciated according to five-year MACRS. The firm's tax rate is 35%, and its after-tax MARR is 11%. Should the machine be purchased? O Click the icon to view the MACRS depreciation schedules. O More Info Click the icon to view the interest factors for discrete compounding when /=11% per year. The present worth of the project is $ - (Round to the nearest dollar.) Class Depreciation Yearn 150% O More info rate 200% 33.33 44.45 14.81" 7.41 200% 20.00 32.00 19.20 11.52 11.52 576 Single Payment Compound Present Amount Worth Factor Factor (F/P, 1, N) (PIF, I, N) 1.1100 0.9009 1.2321 0.8116 1.3676 0.7312 1.5181 0.6587 1.6851 0.5935 200% 14.29 24.49 17.49 12.49 8.93 8.92 8.93 4.46 Equal Payment Series Compound Sinking Present | Capital Amount Fund Worth Recovery Factor Factor Factor Factor (FA, , N) (AUF, 1, N) (PIA, I, N) (A/P, i, N) 1.0000 1.0000 0.9009 1.1100 2.1100 0.4739 1.7125 0.5839 3,3421 0.2992 2.4437 0.4092 4.7097 0.2123 3.1024 0.3223 6.2278 0.1606 3.6959 0.2706 6.93 10 15 200% 150% 10.00 5.00 18.00 9.50 14.40 8.55 11.52 7.70 9.22 7.37 6.55 5.90 6.55 5.90 6.56 5.91 5.90 6.55 3.750 7.219 6.677 6.177 5.713 5.285 4.888 4.522 4.462" 4.461 4.462 4.461 4,462 4.461 4.462 4.461 4.462 4.461 4462 4.461 2.231 3.28 5.91 - N n + to 5.90 5.91 5.90 5.91 2. 95 1.8704 2.0762 2.3045 2.5580 2.8394 0.5346 0.4817 0.4339 0.3909 0.3522 7.9129 9.7833 11.8594 14:1640 16.7220 0.1264 0.1022 0.0843 0.0706 0.0598 4.2305 4.7122 5.1461 5.5370 5.B892 0.2364 0.2122 0.1943 0.1806 0.1698 Print DoneExplanation / Answer
Interest rate = 11%
Particulars
Cost of Machine
60000
Life
6 years
Salvage value
0
Net Benefit
36000-12000 = 24000
Calculation of depreciation and depreciation tax shield:
Year
Depreciation rate
Depreciation amount
Depreciation tax shield
1
20%
60000*20% = 12000
12000*35% = 4200
2
32%
60000*32% = 19200
19200*35% = 6720
3
19.20%
60000*19.2% = 11520
11520*35% = 4032
4
11.52%
60000*11.52% = 6912
6912*35% = 2419.20
5
11.52%
60000*11.52% = 6912
6912*35% = 2419.20
6
5.76%
60000*5.76% = 3456
3456*35% = 1209.60
Calculation of net present value:
Year
Net Benefit
Depreciation tax shield
Total Benefit
Present value factor @ 11%
Present Value
0
-60000
0
0
1
-60000
1
24000
4200
24000 + 4200 = 28200
0.9009
25405.38
2
24000
6720
24000 + 6720 = 30720
0.8116
24932.352
3
24000
4032
24000 + 4032 = 28032
0.7312
20497
4
24000
2419.20
24000 + 2419.20 = 26419.20
0.6587
17402.32
5
24000
2419.20
24000 + 2419.20 = 26419.20
0.5935
15679.79
6
24000
1209.60
24000 + 1209.60 = 25209.60
0.5346
13477.05
TOTAL
57393.89
Yes, Machine should be purchased because NPV is positive.
Interest rate = 11%
Particulars
Cost of Machine
60000
Life
6 years
Salvage value
0
Net Benefit
36000-12000 = 24000
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