An asset in the fiveyear MACRS property class cost $100,000 and has a zero estimated salvage value

Question:

An asset in the five‐year MACRS property class cost $100,000 and has a zero estimated salvage value after six years of use. The asset will generate annual revenues of $300,000 and will require $100,000 in annual labor costs and $50,000 in annual material expenses. There are no other revenues and expenses. Assume a tax rate of 40%.
(a) Compute the after‐tax cash flows over the project life.
(b) Compute the NPW at MARR = 12%. Is this investment acceptable?
(c) Compute the IRR for this project.

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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