A subsidiary of AEP places in service electric generating and transmission equipment at a cost of ($3,000,000.

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A subsidiary of AEP places in service electric generating and transmission equipment at a cost of \($3,000,000. The\) equipment is expected to last 30 years with a salvage value of \($250,000.\) The equipment will increase net income by \($500,000\) in the first year, increasing by 2.4 percent each year thereafter. The subsidiary’s tax rate is 40 percent, and the after-tax MARR is 9 percent. There is some concern that the need for this equipment will last only 10 years and must be sold off for \($550,000\) at that time. Develop tables using a spreadsheet to determine the ATCF for each year and the after-tax PW, AW, IRR, and ERR after only 10 years to see if the venture would be worthwhile economically.

a. Use straight-line depreciation (no half-year convention).

b. Use MACRS-GDS and state the appropriate property class.

c. Use double declining balance depreciation (no half-year convention, no switching).

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Principles Of Engineering Economic Analysis

ISBN: 9781118163832

6th Edition

Authors: John A. White, Kenneth E. Case, David B. Pratt

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