A proposed cost-saving device has an installed cost of $905,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes. The required initial net working capital investment is $65,000, the tax rate is 22 percent, and the project discount rate is 9 percent. The device has an estimated Year 5 salvage value of $125,000. What level of pretax cost savings do we require for this project to be profitable? (MACRS schedule) Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Required cost savings

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
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A proposed cost-saving device has an installed cost of $905,000. The device will be used in a five-year project but is classified as
three-year MACRS property for tax purposes. The required initial net working capital investment is $65,000, the tax rate is 22 percent,
and the project discount rate is 9 percent. The device has an estimated Year 5 salvage value of $125,000. What level of pretax cost
savings do we require for this project to be profitable? (MACRS schedule)
Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
Required cost savings
Transcribed Image Text:A proposed cost-saving device has an installed cost of $905,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes. The required initial net working capital investment is $65,000, the tax rate is 22 percent, and the project discount rate is 9 percent. The device has an estimated Year 5 salvage value of $125,000. What level of pretax cost savings do we require for this project to be profitable? (MACRS schedule) Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Required cost savings
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