A proposed cost-saving device has an installed cost of $820,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes (MACRS schedule). The required initial net working capital investment is $89,000, the tax rate is 22 percent, and the project discount rate is 8 percent. The device has an estimated Year 5 salvage value of $136,000. What level of pretax cost savings do we require for this project to be profitable? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Answer is complete but not entirely correct. Pretax cost savings $ 212,737.59
A proposed cost-saving device has an installed cost of $820,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes (MACRS schedule). The required initial net working capital investment is $89,000, the tax rate is 22 percent, and the project discount rate is 8 percent. The device has an estimated Year 5 salvage value of $136,000. What level of pretax cost savings do we require for this project to be profitable? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Answer is complete but not entirely correct. Pretax cost savings $ 212,737.59
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:A proposed cost-saving device has an installed cost of $820,000. The device will be used in a five-year project but is classified as
three-year MACRS property for tax purposes (MACRS schedule). The required initial net working capital investment is $89,000, the tax
rate is 22 percent, and the project discount rate is 8 percent. The device has an estimated Year 5 salvage value of $136,000. What
level of pretax cost savings do we require for this project to be profitable?
Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
Answer is complete but not entirely correct.
Pretax cost
savings
$
212,737.59
Expert Solution
Step 1
The Company manufacture and sells goods after bearing lots of costs such as material labor, machinery, expenses, etc. The company should invest in those machines which control the company's cost so the Burdon of the cost will be low.
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