A contractor is considering the purchase of a setof machine tools at a cost of $50,000. Thepurchase is expected to generate profits of$19,000 (revenues less expenses) per year ineach of the next 4 years Additional profits will betaxed at a rate of 40%. The asset is depreciatedby straight-line method with zero salvage value.The contractor's real after-tax MARR is 10%(25%)1). What is the PW of this investment? Should thecontractor purchase the machine tools?2). What is the PW of this investment if the generalinflation is 3% in the 4 year period? Should thecontractor purchase the machine tools?

Present worth represent the value of asset or any goods and services after the depreciation and the…

A contractor is considering the purchase of a set of machine tools at a cost of $50,000. The purchase is expected to generate profits of $19,000 (revenues less expenses) per year in each of the next 4 years Additional profits will be taxed at a rate of 40%. The asset is depreciated

A contractor is considering the purchase of a set of machine tools at a cost of $50,000. The purchase is expected to generate profits of $19,000 (revenues less expenses) per year in each of the next 4 years Additional profits will be taxed at a rate of 40%. The asset is depreciated

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter17: Long-term Investment Analysis

Section: Chapter Questions

Problem 2E

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Question

A contractor is considering the purchase of a set
of machine tools at a cost of $50,000. The
purchase is expected to generate profits of
$19,000 (revenues less expenses) per year in
each of the next 4 years Additional profits will be
taxed at a rate of 40%. The asset is depreciated
by straight-line method with zero salvage value.
The contractor's real after-tax MARR is 10%
(25%)
1). What is the PW of this investment? Should the
contractor purchase the machine tools?
2). What is the PW of this investment if the general
inflation is 3% in the 4 year period? Should the
contractor purchase the machine tools?

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