Question: Mach Force has a cost-plus-fixed fee contract with the air force to build jets. The government will buy any additional equipment that it needs on

Mach Force has a cost-plus-fixed fee contract with the air force to build jets. The government will buy any additional equipment that it needs on a justified cost-savings basis. The incremental tax rate for the company is 30%. The company has computed the following labor savings for a new equipment that costs $60000:

Period 1Period 2

Before Tax$35,000$35,000

After Tax$24,500$24,500

The company has an after-tax time value of money of 7% and the federal government has a before-tax time value of money of 5%. Should the equipment be purchased?

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