A new machine is to be purchased for $200,000. The company believes it will generate $75,000 annually in revenue due to the purchase of this machine. The company will have to train an operator to run this machine and this will result in additional labor expenses of $25,000 annually. The new machine will be depreciated using 5 years MACRS, even though the life of the project is 7 years, and the salvage value is estimated to be $0 at the end of year 7. The tax rate is 40% and the company's MARR is 15%

A new machine is to be purchased for $200,000. The company believes it will generate $75,000 annually in revenue due to the purchase of this machine. The company will have to train an operator to run this machine and this will result in additional labor expenses of $25,000 annually. The new machine will be depreciated using 5 years MACRS, even though the life of the project is 7 years, and the salvage value is estimated to be $0 at the end of year 7. The tax rate is 40% and the company's MARR is 15%

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

A firm manufactures padded shipping bags. A cardboard cartonshould contain 100 bags, but machine operators fill the cardboardcartons by eye, so a carton may contain anywhere from 98 to 123bags (average = 105.5 bags). Each padded bag costs $0.03.Management realizes that they are giving away of their outputby overfilling the cartons. One solution is to automate the filling ofshipping cartons. This should reduce the average quantity of bagsper carton to 100.3, with almost no cartons containing fewer than100 bags. The equipment would cost $18,600 and straight-line depreciationwith a 10-year depreciable life and a $3600 salvage value would beused. The equipment costs $16,000 annually to operate. 200,000cartons will be filled each year. This large profitable corporation hasa 28% combined federal-plus-state incremental tax rate. Assume a10-year study period for the analysis and an after-tax MARR of15%.Compute:(a) The after-tax present worth(b) The after-tax internal rate of return(c) The…
A firm manufactures padded shipping bags. A cardboard cartonshould contain 100 bags, but machine operators fill the cardboardcartons by eye, so a carton may contain anywhere from 98 to 123bags (average = 105.5 bags). Each padded bag costs $0.03.Management realizes that they are giving away of their outputby overfilling the cartons. One solution is to automate the filling ofshipping cartons. This should reduce the average quantity of bagsper carton to 100.3, with almost no cartons containing fewer than100 bags. The equipment would cost $18,600 and straight-line depreciationwith a 10-year depreciable life and a $3600 salvage value would beused. The equipment costs $16,000 annually to operate. 200,000cartons will be filled each year. This large profitable corporation hasa 28% combined federal-plus-state incremental tax rate. Assume a10-year study period for the analysis and an after-tax MARR of15%.Compute:(a) The after-tax present worth(b) The after-tax internal rate of return(c) The…
A machine cost P480, 000 and has a salvage value of 10% of its cost at the end of its life of 30,000 operating hours. 1. Determine its book value after using 4000 hrs. a. P 422 400.00 b. P340430.00 c. P 135 180.00 d. P 256 620.00 2. If the machine can produce 50,000 units in its entire life, determine the book value after producing 20 000 units. a. P307 200 b. P326 000 c. P288 000 d. P190 100
A conveyor costs P 50,000 and will last 12 yrs with a a salvage value of P 5,000. Interest is 5%. If the owner decides to sell it after 5 years of use, what should be his selling price so that he will not lose financially in the transaction. Use sinking fund method of depreciation.
The operations manager of a current transport company to change the most modern system on the market. (The current one already has a year of use in the company) current proposal 1 proposal 2 Initial cost of a “zero km” 50,000 75,000 130,000 Expected life 2 years old 3 years old 6 years old Annual cost(in today's currency) 7,000 9,000 6,000 Residual Value 10,000 13,000 28,000 Assuming linear depreciation. Given a real interest rate of 12% p.a., should I replace the current equipment today? If yes, why? Should I replace the current equipment at the end of its life with another one? If yes, why?
When WTA, Inc. purchased rights to extract silver from a mine for a total price of $2.1 million 3 years ago, the estimated 350,000 ounces of silver was to be removed over the next 10 years. A total of 175,000 ounces has been removed and sold thus far. (a) What is the total cost depletion allowed over the 3 years? (b) New exploratory tests indicate that only an estimated 100,000 ounces remain in the veins of the mine. What is the cost depletion factor applicable for the next year?
VML Industries has need of specialized yarn manufacturingequipment for operations over the next 3 years. The firm could buythe machinery for $95,000 and depreciate it using MACRS. Annualmaintenance would be $7500, and it would have a salvage value of$25,000 after 3 years. Another alternative would be to lease thesame machine for $45,000 per year on an “all costs” inclusive lease(maintenance costs included in lease payment). These leasepayments are due at the beginning of each year. VML Industriesuses an after-tax MARR of 18% and a combined tax rate of 28%. Doan after-tax present worth analysis to determine which option ispreferred.
A harvester was purchased 4 years ago for $100,000. The current market value is $45,000, which will decline as follows over the next 5 years: $40,000, $33,500, $28,000, $24,000, and $17,000. The O & M costs are estimated to be $16,000 this year. These costs are expected to increase by $5000 per year starting year 2. MARR = 10% The foregone interest in year 4 is _______________.
3. The Ajax Corporation has an overhead crane thathas an estimated remaining life of 10 years. The cranecan be sold now for $8,000. If the crane is kept in service,it must be overhauled immediately at a cost of $5,000.Operating and maintenance costs will be $3,000 peryear after the crane is overhauled. The overhauled cranewill have zero MV at the end of the 8-year study period.A new crane will cost $20,000, will last for 8 years,and will have a $4,000 MV at that time. Operating andmaintenance costs are $1,000 per year for the new crane.The company uses a before-tax interest rate of 10% peryear in evaluating investment alternatives. Should thecompany replace the old crane?
truck production purchased a truck of $85000. the estimated life span is 5years with salvage vlaue of $10000. compute depreciation using 100% bonus depreciation
An electric oil pump’s first cost is $47,500, and the interest rate is 11%. The pump’s end-of-year salvage values over the next 5 years are $43K, $38K, $35K, $32K, and $26K. Determine the pump’s economic life.
Subject: Engineerings Economics Topics:1. Declining Balance Method (DBM)2. Double Declining Balance Method(DDBM)3. SYD4. Service Output Method5. Uniform Arithmetic Gradient( one problem) Please help me to solve this in step by step manner. Make sure to analyze the question well.BOX your final answer Question: A machine cost P160,000 and is estimated to have a life of 6 years. If the rate of depreciation is 25%, find the salvage value using declining balance method.