Question

# Assume that you will buy and operate a piece of equipment. The machine costs \$25,000. You...

Assume that you will buy and operate a piece of equipment. The machine costs \$25,000. You estimate that the equipment will generate \$10,000 revenue, each year for six years. You also estimate that operating costs for the machine will be \$4,500 each year for six years. These estimates are in constant 2019 dollars. The inflation rate for revenues is estimated to be 3.5%. The inflation rate for operating costs is estimated to be 5.0%.   You will depreciate the machine using the MACRS method, and the 5-year category. The marginal tax rate = 34%. The salvage value = 0.

1. Determine the after-tax cash flow, in actual \$.
2. Determine the book value of the machine for each year
3. Determine the NPW of the actual-dollar, after-tax cash flow, if the MARR = 6%.
 Year Revenues Actual \$ Operating Costs           Actual \$ Before Tax Cash Flow Actual \$ MACRS % Depreciation Amount (dt) Book Value Taxable Cash Flow Tax After Tax Cash Flow Actual \$ 0 NA NA NA NA NA NA 1 2 3 4 5 6

MACRS Table

 Year 3-Year 5-Year 7-Year 1 33.33 20 14.29 2 44.45 32 24.49 3 14.81 19.2 17.49 4 7.41 11.52 12.49 5 11.52 8.93 6 5.76 8.92 7 8.93 8 4.46

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Answer #1

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