Question

Your firm just bought a new piece of equipment for $80,000. The shipping cost was $10,000. The machinery will generate $38,000 of additional revenue per year. It has an economic life of 4 years and falls into the MACRS 3-year class. At the end of 4 years, the equipment can be sold for $15,000 No additional working capital will be needed. The tax rate is 30%. The cost of capital is 8%.

A) what is the initial investment at time 0?

B) Compute the annual tax savings from depreciation (time 1 through 4)

C) Compute the annual after-tax revenue

D) Compute the after-tax salvage value

E) Compute the annual cash flows from time 0 to time F)Compute the project's NPV

macrs 3-year rates

1 year - 0.33

2 year - 0.45

3 year - 0.15

4 year - 0.07

Answer 1