Rework Problem 12 11, assuming the following additional information The machine is classified as a seven year MACRS recovery period The tax rate is 40 , and the after tax MARR is 10 Data From Problem 12 11 A special purpose machine is to be purchased at a cost of $30,000 The following table shows t...

At i 10 and tax rate 40 the economic service life is 1 year Tax Rate MARR Holding Period 0 1 2 3 4 5 ...

Rework Problem 12.11, assuming the following additional information: The machine is classified as a seven-year MACRS recovery

Question:

Rework Problem 12.11, assuming the following additional information:

The machine is classified as a seven-year MACRS recovery period. The tax rate is 40%, and the after-tax MARR is 10%.

Data From Problem 12.11

A special-purpose machine is to be purchased at a cost of $30,000. The following table shows the expected annual operating and maintenance cost and the salvage value for each year of service: Year of Service O&M Cost Market Value $5,000 $25,800 $16,000 $6,500 $10,000 $10,000 $12,500 4 $5,000 $0 $14,800

If the interest rate is 12%, what is the economic service life for this machine?

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other...

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