A mining corporation purchased $120,000 of production machinery and depreciated it using SOYD depreciation, a 5-year depreciable

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A mining corporation purchased $120,000 of production machinery and depreciated it using SOYD depreciation, a 5-year depreciable life, and zero salvage value. The corporation is a profitable one that has a 34% incremental tax rate.
At the end of 5 years the mining company changed its method of operation and sold the production machinery for $40,000. During the 5' years the machinery was used, it reduced mine operating costs by $32,000 a year, before taxes. If the company MARR is 12% after taxes, was the investment in the machinery a satisfactory one?
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...
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Engineering Economic Analysis

ISBN: 9780195168075

9th Edition

Authors: Donald Newnan, Ted Eschanbach, Jerome Lavelle

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