Two fixtures are being considered for a particular job in a manufacturing firm. The pertinent data for their comparison are summarized in the following table. The effective federal and state income tax rate is 55%. Depreciation recapture is also taxed at 55%. If the after-tax MARR is 10% per year, which of the two fixtures should be recommended? Assume repeatability. Capital investment Annual operating expenses Useful life Market value Depreciatia ethed Fixture X $35,000 $6,000 6 years $7,000 Fixture Y $30,000 $4,000 MACRS (CDSLith 8 years $9,000

Two fixtures are being considered for a particular job in a manufacturing firm. The pertinent data for their comparison are summarized in the following table. The effective federal and state income tax rate is 55%. Depreciation recapture is also taxed at 55%. If the after-tax MARR is 10% per year, which of the two fixtures should be recommended? Assume repeatability. Capital investment Annual operating expenses Useful life Market value Depreciatia ethed Fixture X $35,000 $6,000 6 years $7,000 Fixture Y $30,000 $4,000 MACRS (CDSLith 8 years $9,000

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 1E: A firm has the opportunity to invest in a project having an initial outlay of $20,000. Net cash...

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A firm has the opportunity to invest in a project having an initial outlay of $20,000. Net cash inflows (before depreciation and taxes) are expected to be $5,000 per year for five years. The firm uses the straight-line depreciation method with a zero salvage value and has a (marginal) income tax rate of 40 percent. The firms cost of capital is 12 percent. Compute the IRR and the NPV. Should the firm accept or reject the project?
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