Question

After 4 years of use, Company A has decided to replace a capital equipment. Cash flow data is listed in $1000 unit, MACRS 3-year depreciation was used. After tax MARR is 10% per year compounded monthly, Tax rate is 35%.

Year	0	1	2	3	4
Purchase	1900
Gross Income		800	900	600	300
Expenses		100	150	200	250
Salvage					700

1. Utilize the CFBT value to determine if the cash flow over 4 years exceeded MARR.
2. Calculate MACRS depreciation and estimate the CFAT series over the 4 years. Determine if the cash flow over 4 years exceed MARR.

Answer 1

	Cost	Revenue	Expense	Depreciation	Profit	Tax @ 35%	Salvage value	Net cash flow	Discounted @ 10%
Year 0	$ 1,900.00							$      (1,900.00)	$                (1,900.00)
Year 1		$ 800.00	$ 100.00	$          633.33	$      66.67	$           23.33		$            676.67	$                      615.15
Year 2		$ 900.00	$ 150.00	$          633.33	$   116.67	$           40.83		$            709.17	$                      586.09
Year 3		$ 600.00	$ 200.00	$          633.33	$ (233.33)	$                  -		$            400.00	$                      300.53
Year 4		$ 300.00	$ 250.00	$                   -	$      50.00	$           17.50	$            700.00	$            732.50	$                      500.31
									$                      102.07

Since discounted Net cash flow @ 10% is positive, It exceeds MARR in 4 years