A $25,000 investment in a machine is proposed. The project is expected to have a life of

Question:

A $25,000 investment in a machine is proposed. The project is expected to have a life of six years and no . The estimated annual income from the project is $10,000 (time 0 dollars). The investment will be depreciated by the MACRS (CDS) method based on a five-year recovery period. A 40% income tax rate is applied with an after-tax of 25%. It is the company's policy that annual revenue will increase each year to keep pace with the inflation rate of 4% per year (/ = 0.04). The labor, material and utilities totaling $2,000 (time 0 dollars) per year are all expected to increase at 8% per year.
Perform an actual dollar (A$) analysis and determine the annual ATCFs of the preceding investment opportunity. Use a life of six years and work to the nearest dollar. What interest rate would be used for discounting purposes?
Salvage Value
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