Contemporary Engineering Economics (6th Edition)
6th Edition
ISBN: 9780134105598
Author: Chan S. Park
Publisher: PEARSON
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Chapter 9, Problem 41P
To determine
Calculate the Net proceeds.
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What is the after-tax present worth of a
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PLEASE USE EXCEL AND SHOW FORMULAS
Six years ago, a company purchased $30,000 of equipment. The equipment
has just been sold for $5000. The equipment was depreciated using 50% bonus
depreciation / 50% MACRS (using a 5-year recovery period). The actual savings
due to the purchase of the equipment is shown below. The firm's MARR is 12%
and it's tax rate is 25%. What is the after-tax present worth of the investment?
Year
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2
3
4
5
6
Savings 5000
6000
7000
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4000
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Madison Manufacturing is considering a new machine that costs $350,000 and would
reduce pre-tax manufacturing costs by $110,000 annually. Madison would use the 3-year
MACRS method to depreciate the machine, and management thinks the machine would
have a value of $33,000 at the end of its 5-year operating life. The applicable
depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%. Working capital would
increase by $35,000 initially, but it would be recovered at the end of the project's 5-year
life. Madison's marginal tax rate is 25%, and a 10% cost of capital is appropriate for the
project.
1. Calculate the project's NPV, IRR, MIRR, and payback.
2. Assume management is unsure about the $110,000 cost savings this figure
could deviate by as much as plus or minus 20%. What would the NPV be under
each of these extremes?
3. Suppose the CFO wants you to do a scenario analysis with different values for the
cost savings, the machine's salvage value, and the working capital (WC)
requirement.…
Chapter 9 Solutions
Contemporary Engineering Economics (6th Edition)
Ch. 9 - Prob. 1PCh. 9 - Prob. 2PCh. 9 - Prob. 3PCh. 9 - Prob. 4PCh. 9 - Prob. 5PCh. 9 - Prob. 6PCh. 9 - Prob. 7PCh. 9 - Prob. 8PCh. 9 - Prob. 9PCh. 9 - Prob. 10P
Ch. 9 - Prob. 11PCh. 9 - Prob. 12PCh. 9 - Prob. 13PCh. 9 - Prob. 14PCh. 9 - Prob. 15PCh. 9 - Prob. 16PCh. 9 - Prob. 17PCh. 9 - Prob. 18PCh. 9 - Prob. 19PCh. 9 - Prob. 20PCh. 9 - Prob. 21PCh. 9 - Prob. 22PCh. 9 - Prob. 23PCh. 9 - Prob. 24PCh. 9 - Prob. 25PCh. 9 - Prob. 26PCh. 9 - Prob. 27PCh. 9 - Prob. 28PCh. 9 - Prob. 29PCh. 9 - Prob. 30PCh. 9 - Prob. 31PCh. 9 - Prob. 32PCh. 9 - Prob. 33PCh. 9 - Prob. 34PCh. 9 - Prob. 35PCh. 9 - Prob. 36PCh. 9 - Prob. 37PCh. 9 - Prob. 38PCh. 9 - Prob. 39PCh. 9 - Prob. 40PCh. 9 - Prob. 41PCh. 9 - Prob. 42PCh. 9 - Prob. 43PCh. 9 - Prob. 44PCh. 9 - Prob. 45PCh. 9 - Prob. 46PCh. 9 - Prob. 47PCh. 9 - Prob. 48PCh. 9 - Prob. 49PCh. 9 - Prob. 50PCh. 9 - Prob. 51PCh. 9 - Prob. 52PCh. 9 - Prob. 53PCh. 9 - Prob. 1STCh. 9 - Prob. 2STCh. 9 - Prob. 3STCh. 9 - Prob. 4ST
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