Question

1. An injection mokding machine can be purchased and installed for $80,000 It is in the seven-year GDS property class and is expected to be kept in servioe for eight years. It is believed that $12,000 can be obtained when the machine is disposed of at the end of year eight. The net annual value added (i.e, revenues less expenses) that can be attributed to this machine is constant over eight years and amounts to $15,000, An effective income tax rate of 24% is used by the company, and the after-tax MARR equals 12 % per year Click the ioon to view the GDS Recovery Rates (r,) for the 7-year property class. a. What is the approximate value of the company's before-tax MARR? The before-tax MARR is %. (Round to the nearest whole number.) b. Determine the GDS depreciation amounts in years one through eight (Round to the nearest dollar.) Year Depreciation, $ 1 2 3 4 5 6 7 8 C. What is the taxable income at the end of year eight that is related to capital investment? The taxable income at the end of year eight is $ (Round to the nearest dollar.) d. Set up a table and calculate the ATCF for this machine. (Round to the nearesat dollar.) T(24 %), PW(12% ) , EOY BTCF, $ Depreciation, $ TI,$ ATCF, S 0 -80,000 -80,000 -80,000 Deairnd 1 2 Wel 3 4 5 6 7 8 8 12,000 PW(12% ) of ATCF e. Should a recommendation be made to purchase the machine? 10/29/2019 The project should be (1) 1: More Info GDS Rocovery Rates (r) 7-year Property Class Year 1 0.1429 0.2449 2 3 0.1749 0.1249 4. 0.0893 5 6 0.0B92 0.0893 7 0.0446 (1)O rejected O accepted

Answer 1

a. The before tax MARR = 16 %

b.

Year	Depreciation
1	$ 11,432
2	19,592
3	13,992
4	9,992
5	7,144
6	7,136
7	7,144
8	3,568

c. Taxable income at the end of year 8 : $ 12,000

d.

EOY	BTCF, $	Depreciation, $	TI, $	T(24%), $	ATCF, $	PW
0	- 80,000					- 80,000
1	15,000	11,432	3,568	856	14,144	12,629
2	15,000	19,592	- 4,592	1,103	16,103	12,837
3	15,000	13,992	1,008	242	14,758	10,504
4	15,000	9,992	5,008	1,202	13,798	8,769
5	15,000	7,144	7,856	1,885	13,115	7,442
6	15,000	7,136	7,864	1,887	13,113	6,643
7	15,000	7,144	7,856	1,885	13,115	5,933
8	15,000	3,568	11,432	2,744	12,256	4,950
	12,000		12,000	2,880	9,120	3,683
					NPW	- 6,610

e. No.

f. The project should be Rejected.