Question

Florida Construction Equipment Rentals (FCER) purchases a new 10,000 pound crane for rental to its customers....

Florida Construction Equipment Rentals (FCER) purchases a new 10,000 pound crane for rental to its customers. This crane costs $1,125,000 and is expected to last for 25 years, at which time it will have an expected salvage value of $147,000. FCER earns $195,000 before-tax cash flow each year in rental income for this crane, and its total taxable income each year is between $10M and $15M. If FCER uses straight-line depreciation and a MARR of 15%, what is the present worth of the after-tax cash flow for this equipment?

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Answer #1

Solution:

Assuming tax to be:40%, so the after tax cash flow will be 195000 * (1-.40) + depreciation (1125000/25)

Year Cash flow
0 -1125000
1 162000
2 162000
3 162000
4 162000
5 162000
6 162000
7 162000
8 162000
9 162000
10 162000
11 162000
12 162000
13 162000
14 162000
15 162000
16 162000
17 162000
18 162000
19 162000
20 162000
21 162000
22 162000
23 162000
24 162000
25 309000
Present worth $      -73,342.34
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