A company invests $5,000,000 in MACRS GDS 5-year property. Measured in constant dollars, the investment yields...

 

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A company invests $5,000,000 in MACRS GDS 5-year property. Measured in constant dollars, the investment yields savings of $1,500,000 the first year; thereafter, annual savings decrease $100,000 per year for 10 years, at which time the equipment has a constant dollar salvage value of $900,000. Inflation is anticipated to equal 3% per year over the planning horizon. Section 179 expense deduction and 50% bonus depreciation are available. A real required return on investment of 10% is used by the company in performing economic justifications. Based on an income tax rate of 25%, calculate a. After-tax present worth, b. After-tax annual worth measured in then-current dollars, and c. EVA measured in then-current dollars. A company invests $5,000,000 in MACRS GDS 5-year property. Measured in constant dollars, the investment yields savings of $1,500,000 the first year; thereafter, annual savings decrease $100,000 per year for 10 years, at which time the equipment has a constant dollar salvage value of $900,000. Inflation is anticipated to equal 3% per year over the planning horizon. Section 179 expense deduction and 50% bonus depreciation are available. A real required return on investment of 10% is used by the company in performing economic justifications. Based on an income tax rate of 25%, calculate a. After-tax present worth, b. After-tax annual worth measured in then-current dollars, and c. EVA measured in then-current dollars.

Answer rating: 100% (QA)

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