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A construction company is considering acquiring a new earthmover. The purchase price is $110,000, and an additional $25,000 is required to modify the equipment for special use by the company. The equipment falls into the MACRS seven-year classification (the tax life), and it will be sold after five years (the project life) for $50,000 The purchase of the earthmover will have no effect on revenues, but the machine is expected to save the firm $68,000 per year in before-tax operating costs, mainly labor. The firms marginal tax rate is 25%. Assume that the initial investment is to be financed by a bank loan at an interest rate of 10% payable annually. Determine the after-tax cash flows by using the generalized cash flow approach and the worth of the investment for this project if the firms MARR is known to be 12%. Click the icon to view the MACRS depreciation schedules. Click the icon to view the interest factors for discrete compounding when i-10% per year Click the icon to view the interest factors for discrete compounding when 12% per year. Fill in the table below. (Round to the nearest dollar.) Period Net After-Tax Cash Flow

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C43 Vf-135000*0.1429 Net after- tax cash Labor Depreci Net Deprecia Operating | Tax@25% | income | tion | cash flows Investment 41 Year savings ation 42 431$ 68,000 $19,292$ 48,709 12,177 $36,531 $19,292 $ 55,823 442 $ 68,000 $33,062 34,939 $ 8,735 $26,204 $33,062$ 59,265 45 3 $ 68,000 $23,612 44,389 $ 11,097 $33,291 $23,612$ 56,903 46 4$ 68,000 $16,862 $ 51,139 $ 12,785 $38,354 $16,862$ 55,215 47 5 $ 68,000 $12,056S 55,945$ 13,986 $41,958 $12,056 54,014$ 45,030$99,044 48 49 PBT $ -135,000 $ -135,000 $ 55,823 $ 59,265 $ 56,903 S 55,215 0 $ 135,000 51 52 53 54 Asset cost Less: Depreciation charged $ 104,882 WDV of machine at the time of 30,119 Sale value of machine Profit/(Loss) on sale Less. Tax @25% After tax cash flows from saled $ 45,030 $ 50,000 $ 19,882 $4,970 57

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