Two mutually exclusive alternatives are being considered by a profitable corporation with an annual taxable income between
Question:
Two mutually exclusive alternatives are being considered by a profitable corporation with an annual taxable income between $5 million and $10 million. Before-Tax Cash Flow
Year Alt. A Alt. B
0 -$3000 -$5000
1 1000 1000
2 1000 1200
3 1000 1400
4 1000 2600
5 1000 2800
Both alternatives have a 5-year useful and depreciable life and no salvage value. Alternative A would be depreciated by sum-of-years' -digits depreciation, and Alt. B by straight-line depreciation. If the MARR is 10% after taxes, 'Y which alternative should" be selected?
DepreciationDepreciation is an important concept in accounting. By definition, depreciation is the wear and tear in the value of a noncurrent asset over its useful life. In simple words, depreciation is the cost of operating a noncurrent asset producing... 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... MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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