ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Chapter 12, Problem 57P
To determine
To find: The value of after-tax
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N1
New equipment costing
$35,000
has a 5 -year life and no salvage value. Benefits are expected to be
$9000
per year. The equipment qualifies for
100%
bonus depreciation. The firm has a
28%
combined marginal income tax rate. What is the after-tax rate of return?
A corporate expects to receive $36,144 each year for 15 years if a particular project is undertaken. There will be an initial investment of $100,705. The expenses associated with the project are expected to be $7,740 per year. Assume straight-line depreciation, a 15-year useful life, and no salvage value. Use a combined state and federal 48% marginal tax rate, MARR of 8%, determine the project's after-tax net present worth.
Perform an after-tax cash flow analysis on the following data on the replacement of an old equipment with a more energy-afficient version. Use an effective tax rate of 30% and the straight-line method for depreciation.
Initial Investment: 500,000Useful life: 5 yearsTerminal Value: 50,000Annual Revenues, 240,000
Annual Expenses
Power: 75,000Maintenance: 25,000Property Insurance: 20,000
1. If the after-tax MARR is 6%, what is the net present worth (in pesos) of replacing the old equipment? (2 decimal places)
2. After evaluation, is the replacement of the old equipment economically feasible?
Chapter 12 Solutions
ENGR.ECONOMIC ANALYSIS
Ch. 12 - Prob. 1QTCCh. 12 - Prob. 2QTCCh. 12 - Prob. 3QTCCh. 12 - Prob. 1PCh. 12 - Prob. 2PCh. 12 - Prob. 3PCh. 12 - Prob. 4PCh. 12 - Prob. 5PCh. 12 - Prob. 6PCh. 12 - Prob. 7P
Ch. 12 - Prob. 8PCh. 12 - Prob. 9PCh. 12 - Prob. 10PCh. 12 - Prob. 11PCh. 12 - Prob. 12PCh. 12 - Prob. 13PCh. 12 - Prob. 14PCh. 12 - Prob. 15PCh. 12 - Prob. 16PCh. 12 - Prob. 17PCh. 12 - Prob. 18PCh. 12 - Prob. 19PCh. 12 - Prob. 20PCh. 12 - Prob. 21PCh. 12 - Prob. 22PCh. 12 - Prob. 23PCh. 12 - Prob. 24PCh. 12 - Prob. 25PCh. 12 - Prob. 26PCh. 12 - Prob. 27PCh. 12 - Prob. 28PCh. 12 - Prob. 29PCh. 12 - Prob. 30PCh. 12 - Prob. 31PCh. 12 - Prob. 32PCh. 12 - Prob. 33PCh. 12 - Prob. 34PCh. 12 - Prob. 35PCh. 12 - Prob. 36PCh. 12 - Prob. 37PCh. 12 - Prob. 38PCh. 12 - Prob. 39PCh. 12 - Prob. 40PCh. 12 - Prob. 41PCh. 12 - Prob. 42PCh. 12 - Prob. 43PCh. 12 - Prob. 44PCh. 12 - Prob. 45PCh. 12 - Prob. 46PCh. 12 - Prob. 47PCh. 12 - Prob. 48PCh. 12 - Prob. 49PCh. 12 - Prob. 50PCh. 12 - Prob. 51PCh. 12 - Prob. 52PCh. 12 - Prob. 53PCh. 12 - Prob. 54PCh. 12 - Prob. 55PCh. 12 - Prob. 56PCh. 12 - Prob. 57PCh. 12 - Prob. 58PCh. 12 - Prob. 59PCh. 12 - Prob. 60PCh. 12 - Prob. 61PCh. 12 - Prob. 62PCh. 12 - Prob. 63PCh. 12 - Prob. 64PCh. 12 - Prob. 65P
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- Determine whether the following contract described below is worthwhile ofundertaking after taxes if at the end of the 3-year of ownership the contract, you expect to sellboth depreciable equipment and land. Use present worth analysis under MARR = 8% andeffective tax rate.arrow_forwardOmar Shipping Company bought a tugboat for $75,000 (year 0) and expectedto use it for five years after which it will be sold for $12,000. Suppose the companyestimates the following revenues and expenses from the tugboat investmentfor the first operating year:Operating revenue $200,000Operating expenses $8400Depreciation $4000 If the company pays taxes at the rate of 30% on its taxable income, what is the net income during the first year?arrow_forward123 Systems located in Alabama expects a 9% after-tax rate of return on an equipment investment. The state tax rate is 6%. If the company is in the 34% federal tax bracket, estimate the before-tax rate of return required. A. 11.36% B. 13.80% C. 13% D. 14.51%arrow_forward
- A project capitalized for ₱45,000 invested in depreciable assets will earn a uniform, annual income of ₱19945 in 10 years. The cost for operation and maintenance total ₱9,000 a year, and annual taxes and insurance will cost 4% of the investment. The company expects its capital to earn 12% before income taxes. Determine the equivalent uniform annual cost of the project.arrow_forwardA car industry invested $20,000 in cars with a 3-year useful life. The cars will have no salvage value, as the cost to remove it will equal its scrap value. The uniform annual benefits from the cars are $12,000. For a combined 25% income tax rate, and 100% bonus depreciation, compute the after-tax net present worth (NPW) using MARR if 10%.arrow_forwardA machine has a first cost of P36,000 and a salvage value ofP4,000 after 8 years. Find the annual depreciation rate using straight line method. It's engineering economics questions.arrow_forward
- An asset with a first cost of $9000 is depreciated using 5-year MACRS recovery. The CFBT is estimated at $10,000 for the first 4 years and $5000 thereafter as long as the asset is retained. The effective tax rate is 40%, and money is worth 10% per year. In present worth dollars, how much of the cash flow generated by the asset over its recovery period is lost to taxes?arrow_forward4. Last month, a company specializing in wind power plant design and engineering made a capital investment of $460,000 in physical simulation equipment that will be used for at least 5 years, then sold for approximately 30% of the first cost. By law, the assets are MACRS depreciated using a 3-year recovery period. By how much will the sale cause TI and taxes to change in year 5? The TI will increase by $ and the taxes will increase byarrow_forwardGiven: Before -Tax Cash Flow (BT-CF) for Kal Tech Systems in 2012 for an equipment that will be depreciated using the SL method with salvage value of $10,000. Year 0 1 2 3 4 5 BT-CF -$120,000 32,000 32,000 32,000 32,000 32,000 Market value - $36,000 What is the after-tax return if the company is in the 34% income tax bracket? The incremental tax rate is 34%. Also, it is known that the before-tax return is 16.65% Group of answer choices 9.65% 11.29% 10.16% 10.99%arrow_forward
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