Question

Some new equipment under consideration will cost $1,800,000 and will be used for 5 years. Net...

Some new equipment under consideration will cost $1,800,000 and will be used for 5 years. Net
working capital will experience a one time increase of $769,000 if the equipment is purchased.
The equipment is expected to generate annual revenues of $1,200,000 and annual costs of
$384,000. The project falls under the five-year MACRs class for tax purposes, the tax rate is 21
percent, and the cost of capital is 13 percent. The project's fixed assets can be sold for $432,000
at the end of the project's life.
a. What is the book value of the equipment at the end of the project's life? Round your
answer to the nearest whole dollar.

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Answer #1

Solution:

It is given that the initial cost is $1,800,000 and salvage value will not be considered in the calculation of depreciation

The book value after year 5 is $103,680.

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