EBK CONTEMPORARY ENGINEERING ECONOMICS
EBK CONTEMPORARY ENGINEERING ECONOMICS
6th Edition
ISBN: 8220101336736
Author: Park
Publisher: PEARSON
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Chapter 10, Problem 25P
To determine

Calculate the net cash flow.

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A construction company is considering acquiring a new earthmover. The purchase price is ​$105,000​,and an additional ​$28,000 is required to modify the equipment for special use by the company. The equipment falls into the MACRS​ seven-year classification​ (the tax​ life), and it will be sold after five years​ (the project​ life) for $55,000.The purchase of the earthmover will have no effect on​ revenues, but the machine is expected to save the firm ​$70,000 per year in​ before-tax operating​ costs, mainly labor. The​ firm's marginal tax rate is 21​%. Assume that the initial investment is to be financed by a bank loan at an interest rate of 6​% payable annually. Determine the​ after-tax cash flows by using the generalized cash flow approach and the worth of the investment for this project if the​ firm's MARR is known to be 11​%.
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