If the device should be purchased or not.
Answer to Problem 81P
The device should be purchased.
Explanation of Solution
Given:
Purchase amount is
MACRS
Net Benefit is
Increase in benefit per year is
Inflation rate is
Combined interest rate is
After tax rate of return is
Calculation:
Make the table to calculate the MARCS
Year | BTCF |
MACR rate |
Depreciation |
Cumulative depreciation |
$6749.06 |
Draw the table to calculate the after tax cash flow.
Year | BTCF |
Depreciation |
TaxableIncome |
Income taxes |
ATCF |
Make the table to compute the required data.
Year | ATCF |
ATCF Year |
Calculate after tax rate of return.
Here, the after tax cash flow for year
Substitute,
Solve for the value of
Conclusion:
Since the after tax rate of return is greater than
Hence, the device should be purchased.
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Chapter 14 Solutions
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