The company is considering a project to improve their production efficiency. They are trying to decide whether it is a good idea or not to buy an automated machine which will result in reducing pre-tax costs by $200,000 for each of the next five years. The machine will cost $475,000 and the IRS says it must be depreciated as 5-year MACRS equipment. The company believes they can sell the machine for $70,000 at the end of five years. The machine will require an initial investment to increase inventory by $20,000, and then an additional inventory increase of $5,000 for each succeeding year of the project. At the end of the project, inventory will return to its normal level. The company's tax rate is 35% and uses a discount rate of 14% APR with annual compounding.

  

What is the after-tax salvage value of the equipment at the end of the project?

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Year 1 2 5-year MACRS 20.00% 32.00% Year 1 2 5-year MACRS 20.00% 32.00% Year 1 2 5-year MACRS 20.00% 32.00%

Answer rating: 100% (QA)

Given Initial cost of the equipment 475000 Depreciation using the 5year MACRS schedule Year 1 20 dep... View the full answer