A proposed cost-saving device has an installed cost of $865,000. The device will be used in a

Question:

A proposed cost-saving device has an installed cost of $865,000. The device will be used in a six-year project, but is classified as manufacturing and processing equipment for tax purposes. The required initial net working capital investment is $58,000, the marginal tax rate is 36 percent, and the project discount rate is 13.5 percent. The device has an estimated Year 6 salvage value of $138,000. What level of pre-tax cost savings do we require for this project to be profitable? The CCA rate is 20 percent.

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... Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...

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