(a) A new employee at CLL Engineering Consulting, Inc., you are asked to join a team performing...

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(a) A new employee at CLL Engineering Consulting, Inc., you are asked to join a team performing an economic analysis for a client. Your team seems stumped on how to assign an after-tax first cost to the defender and challenger assets under consideration. Your task is to take the following data and find the ATCF for each alternative. There is no need for a complete analysis-your colleagues can handle that responsibility-they need help only with the time 0 ATCFs. CLL Inc. has a combined federal/state tax rate of 45% on ordinary income, depreciation recapture, and losses.
Defender: This asset was placed in service 7 years ago. At that time the $50,000 cost basis was set up on a straight-line depreciation schedule with an estimated salvage value of $15,000 over its l0-year ADR life. This asset has a present market value of $30,060.
Challenger: The new asset being considered has a first cost of $85,000 and will be depreciated by MACRS depreciation over its l0-year class life. This asset qualifies for a 10% investment tax credit.
(b) How would your calculations change if the present market value of the defender is $25,5OO?
(c) How would your calculations change if the present market value of the defender is $18, 000?
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...
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Engineering Economic Analysis

ISBN: 9780195168075

9th Edition

Authors: Donald Newnan, Ted Eschanbach, Jerome Lavelle

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