6) A company is considering the purchase of a new automated assembly machine to increase its production capacity. The initial cost of the machine is $480,000. It is expected to increase the company's annual revenue by $200,000. The annual O&M costs are estimated to be $40,000. The machine's estimated salvage value at the end of its useful life of 4 years is expected be $72,000. This new machine is a MACRS- GDS 3-vear property for calculating depreciation deductions. The effective tax rate is 35%. a) For this new machine, determine the after-tax cash flow for each year of operation. (Round off values to the nearest dollar) EOY BTCF Tax ATCF 0 1 2 3 4 MACRS-GDS Deduction Taxable Income b) If the after-tax MARR is 10% per year compounded annually, compute the PW of the after-tax cash flows. Based on this PW, would you recommend the purchase of this new machine?

6) A company is considering the purchase of a new automated assembly machine to increase its production capacity. The initial cost of the machine is $480,000. It is expected to increase the company's annual revenue by $200,000. The annual O&M costs are estimated to be $40,000. The machine's estimated salvage value at the end of its useful life of 4 years is expected be $72,000. This new machine is a MACRS- GDS 3-vear property for calculating depreciation deductions. The effective tax rate is 35%. a) For this new machine, determine the after-tax cash flow for each year of operation. (Round off values to the nearest dollar) EOY BTCF Tax ATCF 0 1 2 3 4 MACRS-GDS Deduction Taxable Income b) If the after-tax MARR is 10% per year compounded annually, compute the PW of the after-tax cash flows. Based on this PW, would you recommend the purchase of this new machine?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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