Suppose your firm buys a drilling machine in Month 0, and sells it in Month 102. Perform
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Question:
Suppose your firm buys a drilling machine in Month 0, and sells it in Month 102. Perform a complete tax calculation and find the after-tax present value of buying, using and selling the asset, given the following information:
- There is no inflation.
- Your firm’s before-tax MARR is 10% per year.
- The relevant tax rate is t = 27% (15% federal + 12% B.C.)
- It is appropriate to use the usual rule of thumb to calculate the after-tax MARR.
- The machine costs $6,000 in Month 0
- The machine provides income of $500 per month from Month 1 to Month 102, inclusive (102 months, first income payment is Month 1).
- Your firm gets $100.92 scrap value from the machine in Month 102.
- This drilling machine counts as a Class 8 good, so the CRA-mandated depreciation rate for tax purposes is d=20% per year.
What is the after-tax net present value of this machine? Show your work. (Hint: You’ll need to use CTF and CSF).
After-Tax Net Present Value: ________________________
[Work]
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