After-Tax Replacement Analysis A new 7-ycar property class asset will require an

Question

After-Tax Replacement Analysis A new 7-ycar property class asset will require an investment of $200,000 and is expected to have year- end MVs and annual expenses as shown in the table below. Assume an effective income tax rate of 35% and an after-tax MARR of 8% per year EOY 0 MV $200,000 $161,258 $133,003 $101,378 $63,396 $55,693 $1,896 Annual Expenses S0 15,000 $12,500 $13,000 $18,800 $22,750 16,500 6 Use MACRS (GDS) and find the economic life on an after-tax basis for the new depreciable property?

Explanation / Answer

After tax economic life is 7 years

EUAC

1 2 3 4 5 6 End of the year k EOY MV at year k Loss in MV during K Cost of capital= 8% of EOY MV Col B Annual expenses Appro After-tax total marginal cost for year k= (1-35%)(col 3+4+5) 0 200000 0 0 0 0 1 161258 38742 12900.64 15000 43317.72 2 133003 28255 10640.24 12500 33406.91 3 101378 31625 8110.24 13000 34277.91 4 63396 37982 5071.68 18800 40204.89 5 55693 7703 4455.44 22750 22690.49 6 1896 53797 151.68 16500 45791.64

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