Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506725
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Question
Chapter 21, Problem 17CQ
To determine
The expected cost of holding a machine.
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A corporation is considering purchasing a machine that will save $150,000 per year before taxes. The cost of operating the machine (including maintenance) is $30,000 per year. The machine will be needed for five years, after which it will have a
zero salvage value. MACRS depreciation will be used, assuming a three-year class life. The marginal income tax rate is 25%. If the firm wants 15% return on investment after taxes, how much can it afford to pay for this machine?
Click the icon to view the MACRS depreciation schedules.
Click the icon to view the interest factors for discrete compounding when i = 15% per year.
If the firm wants 15% return on investment after taxes, it can afford to pay $ thousand for this machine. (Round to one decimal place.)
A new bottle-capping machine costs $45 000, including $5000 for installation. The machine is expected to have a useful life of eight years with no salvage value at that time (assume straight-line depreciation). Operating and maintenance costs are expected to be $3000 for the first year, increasing by $1000 each year thereafter. Interest is 12 percent.
What is the economic life of the bottle capper?
3-21. You can buy a machine for $100,000 that will
produce a net income, after operating expenses,
of $10,000 per year. If you plan to keep the
machine for four years, what must the market
(resale) value be at the end of four years to justify
the investment? You must make a 12% annual
return on your investment.
Chapter 21 Solutions
Economics: Private and Public Choice (MindTap Course List)
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