Question
Owen Eyewear is planning to purchase a $520,000 machine to improve the quality and lead time of its eyewear production. Management estimates that this investment
Owen Eyewear is planning to purchase a $520,000 machine to improve the quality and lead time of its eyewear production. Management estimates that this investment will result in an increase in annual cash revenues of $380,000 and increase related operating costs by $32,000. The machine will be depreciated by the straightline method over a fiveyear life with a salvage value of $25,000. What is the present value of the tax effect due to using the Modified Accelerated Cost Recovery System (MACRS) deprecation method instead of straight line in Year 1?
Assume a 30% income tax rate and a 12% hurdle rate (cash flows occur evenly throughout the year and the asset will be placed in service at the beginning of the fiscal year). The MACRS depreciation rate for Year 1 of a fiveyear asset is 20%.
Unable to determine with the information provided
$0
$1,339
$4,465
Step by Step Solution
There are 3 Steps involved in it
Step: 1
To calculate the present value of the tax effect due to using the MACRS depreciation method instead ...Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Document Format ( 2 attachments)
6642444456c6e_983748.pdf
180 KBs PDF File
6642444456c6e_983748.docx
120 KBs Word File
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started