Abbott placed into service a flexible manufacturing cell costing $860,000 early this year. They financed $425,000 of the initial cost of the cell at 11% per year over 5 years. Gross income due to the cell is expected to be $750,000 with deductible expenses of $465,000. Depreciation is based on MACRS-GDS, and the cell is in the 7-year property class. Abbott's marginal tax rate is 25%, MARR is 9% after taxes, and they expect to keep the cell for 8 years. Determine the PW, FW, AW, IRR, and ERR for the investment if: a. The loan is paid back using Method 1 (interest only at the end of each year of the loan, plus principal at the end of the last year). b. The loan is paid back using Method 2 (equal annual principal payments plus interest on the unpaid loan balance). c. The loan is paid back using Method 3 (equal annual principal plus interest payments during each year of the loan). d. The loan is paid back using Method 4 (principal plus interest is paid at the end of the loan period).

Abbott placed into service a flexible manufacturing cell costing $860,000 early this year. They financed $425,000 of the initial cost of the cell at 11% per year over 5 years. Gross income due to the cell is expected to be $750,000 with deductible expenses of $465,000. Depreciation is based on MACRS-GDS, and the cell is in the 7-year property class. Abbott's marginal tax rate is 25%, MARR is 9% after taxes, and they expect to keep the cell for 8 years. Determine the PW, FW, AW, IRR, and ERR for the investment if: a. The loan is paid back using Method 1 (interest only at the end of each year of the loan, plus principal at the end of the last year). b. The loan is paid back using Method 2 (equal annual principal payments plus interest on the unpaid loan balance). c. The loan is paid back using Method 3 (equal annual principal plus interest payments during each year of the loan). d. The loan is paid back using Method 4 (principal plus interest is paid at the end of the loan period).

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

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?
You are evaluating two different silicon wafer milling machines. The Techron | costs $264,000, has a 3-year life, and has pretax operating costs of $71,000 per year. The Techron Il costs $460,000, has a 5-year life, and has pretax operating costs of $44,000 per year. For both milling machines, use straight-line depreciation to zero over the project's life and assume a salvage value of $48,000. If your tax rate is 22 percent and your discount rate is 12 percent, compute the EAC for both machines. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) > Answer is complete but not entirely correct. Techron I $ -134,840.83 Techron II $ -107,570.18
You must evaluate the purchase of a spectrometer for the R&D department. The base price is $140,000, and it would cost another $30,000 to modify the equipment for special use by the firm. The equipment falls into the MACRS 4 year class and would be sold after 4 years for $60,000. The applicable depreciation rates are 33%, 45%, 15% and 7%. The equipment would require an $8000 increase in net operating working capital. The project would have no effect on revenues, but it should save the firm $50,000 per year before-tax labour costs. The firm's marginal federal-plus state tax rate is 40%. QUESTION:W Whatare the project's annual cash flows in Years 1, 2,3 and 4?
A piece of equipment bought for $50,000 at MKBK Systems is being depreciated using the Straight-Line method, a life of 5 years, and a salvage value of $5,000. At the end of four years, the management decided to sell the equipment for a modest price of $20,000. The company is in the 34% tax bracket. Compute the income tax that MKBK will owe on the sale of this equipment. Group of answer choices $6800 $3060 $2040 $5780
A small print shop is investing in new printing equipment that will cost $30,000. They estimate that they will gain of $10,000 per year in additional revenues for each of the next 6 years. At the end of 6 years, the equipment will have a salvage value of $2,500. Assuming a tax rate of 23%, a MACRS 5-year property class, 50% bonus depreciation, and an after-tax MARR of 11%, compute the present worth of the printing equipment and determine whether or not the print shop should invest in it. Click here to access the TVM Factor Table calculator. Click here to access the MACRS-GDS Property Classes. Click here to access the MACRS-GDS percentages page. Click here to access the MACRS-GDS percentages for 27.5-year residential rental property. Carry all interim calculations to 5 decimal places and then round your final answer to a whole number. The tolerance is ±10. Should the print shop invest in the printing equipment?
B. The installation cost of a machine is $10000 with estimated life of 10 years and selvage value of $2000 at the end of the 10th year. What will be the annual depreciation cost in the fourth year (using straight line method)?
A small print shop is investing in new printing equipment that will cost $30,000. They estimate that they will gain of $12,000 per year in additional revenues for each of the next 6 years. At the end of 6 years, the equipment will have a salvage value of $3,500. Assuming a tax rate of 22%, a MACRS 5-year property class, 50% bonus depreciation, and an after-tax MARR of 10%, compute the present worth of the printing equipment and determine whether or not the print shop should invest in it. Click here to access the TVM Factor Table calculator. Click here to access the MACRS-GDS Property Classes. Click here to access the MACRS-GDS percentages page. Click here to access the MACRS-GDS percentages for 27.5-year residential rental property. %24
MUST USE ONLY EXCEL SPREADSHEET FOR THIS PROBLEM A corporation with $7 million in annual taxable income and no state tax is considering two alternatives: Year 0 1-10 11-20 Before-Tax Cash Flow ($1000) Alt 1 Alt 2 -10,000 4,500 0 -20,000 4,500 4,500 Both alternatives will be depreciated by 40% bonus depreciation taken in year 0 plus 10-year MACRS depreciation. Neither alternative is to be replaced at the end of its useful life. If the corporation has a minimum attractive rate of return of 10% after taxes, which alternative should it choose? Solve the problem by: (a) Present worth analysis (b) Annual cash flow analysis (c) Rate of return analysis (d) Future worth analysis (e) Benefit-cost ratio analysis
An asset costs $150,000 and has a salvage value of $15,000 after 10 years.What is the depreciation charge for the 4th year, and what is the book value atthe end of the 8th year with(a)Straight-line depreciation?(b)Double declining balance depreciation?
The Shell Corp. owns a piece of petroleum drilling equipment that costs $200,000 and will be depreciated by DDB depreciation with B=$200,000, N=10 years, S=$0. There is a combined 50% tax rate. Shell will lease the equipment to others each year and receive $80,000 per year. At the end of 3years, the firm will sell the equipment for $100,000. If the firm requires a 10% after-tax rate of return, what is the PW of the investment?
A company paid $200,000 for a machine to make a new product. The machine has a 5 year life and a salvage value of $20,000. The company makes $49,500 per year on the new product. Assuming a 31% tax rate and straight-line depreciation, what is the before tax and after tax rates of return on the investment over its 5 year life? (Do not interpolate. Round to the closest rate in appendix C of the book). And Please show work and also post on excel sheet
! Required information A project has a first cost of $820000, a salvage value of 20.00% of the first cost after 3 years, and annual (GI-OE) of $270000. Assume the company has a Te of 37%. Determine the before-tax rate of return (ROR). (Round the final answer to three decimal places.) The before-tax rate of return (ROR) is determined to be 34.325 %.