Certain new machinery used in manufacturing of motor vehicles, when placed in service, is estimated to cost $275,000. It is expected to reduce net annual operating expenses by $56,000 per year for 10 years and to have a $41,000 MV at the end of the 10th year. Assume that the firm is in the federal taxable income bracket of $335,000 to $10,000,000 and that the state income tax rate is 7.5%. State income taxes are deductible from federal taxable income. This machinery is to be depreciated using the MACRS (GDS). Develop the BTCFs and ATCFs and compute for the respective PWs at EOY 0 using an MARR of 12%.
Certain new machinery used in manufacturing of motor vehicles, when placed in service, is estimated to cost $275,000. It is expected to reduce net annual operating expenses by $56,000 per year for 10 years and to have a $41,000 MV at the end of the 10th year. Assume that the firm is in the federal taxable income bracket of $335,000 to $10,000,000 and that the state income tax rate is 7.5%. State income taxes are deductible from federal taxable income. This machinery is to be depreciated using the MACRS (GDS). Develop the BTCFs and ATCFs and compute for the respective PWs at EOY 0 using an MARR of 12%.
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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Certain new machinery used in manufacturing of motor vehicles, when placed in service, is estimated to cost $275,000. It is expected to reduce net annual operating expenses by $56,000 per year for 10 years and to have a $41,000 MV at the end of the 10th year. Assume that the firm is in the federal taxable income bracket of $335,000 to $10,000,000 and that the state income tax rate is 7.5%. State income taxes are deductible from federal taxable income. This machinery is to be
![Certain new machinery used in manufacturing of motor vehicles, when placed in service, is estimated to cost $275,000. It is expected to
reduce net annual operating expenses by $56,000 per year for 10 years and to have a $41,000 MV at the end of the 10th year. Assume
that the firm is in the federal taxable income bracket of $335,000 to $10,000,000 and that the state income tax rate is 7.5%. State income
taxes are deductible from federal taxable income. This machinery is to be depreciated using the MACRS (GDS). Develop the BTCFS and
ATCFS and compute for the respective PWs at EOY O using an MARR of 12%.
Before-Tax Cash
Flow ($)
Cash Flow for Income After-Tax Cash Flow
Taxes ($)
EOY
Depreciation ($)
Taxable Income ($)
($)
[1]
1
[2]
2
[3]
3
[4]
14
[5]
5
6
[6]
17
8
[7]
19
10
[8]
PW(0) using
MARR
[9]
[10]
Based on Before-Tax Analysis, is this machinery worth investing in? {"YES"/"NO"}
Based on After-Tax Analysis, is this machinery worth investing in? {"YES"/"NO"}
[11]
[12]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F3813762c-59a4-41a4-841b-409a5ed4d608%2F1023df3e-84de-4297-8c8e-e64d4b7edeb1%2Ft8koaer_processed.png&w=3840&q=75)
Transcribed Image Text:Certain new machinery used in manufacturing of motor vehicles, when placed in service, is estimated to cost $275,000. It is expected to
reduce net annual operating expenses by $56,000 per year for 10 years and to have a $41,000 MV at the end of the 10th year. Assume
that the firm is in the federal taxable income bracket of $335,000 to $10,000,000 and that the state income tax rate is 7.5%. State income
taxes are deductible from federal taxable income. This machinery is to be depreciated using the MACRS (GDS). Develop the BTCFS and
ATCFS and compute for the respective PWs at EOY O using an MARR of 12%.
Before-Tax Cash
Flow ($)
Cash Flow for Income After-Tax Cash Flow
Taxes ($)
EOY
Depreciation ($)
Taxable Income ($)
($)
[1]
1
[2]
2
[3]
3
[4]
14
[5]
5
6
[6]
17
8
[7]
19
10
[8]
PW(0) using
MARR
[9]
[10]
Based on Before-Tax Analysis, is this machinery worth investing in? {"YES"/"NO"}
Based on After-Tax Analysis, is this machinery worth investing in? {"YES"/"NO"}
[11]
[12]
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