Milliken uses a digitally controlled dyer for placing intricate and integrated p
ID: 2498988 • Letter: M
Question
Milliken uses a digitally controlled dyer for placing intricate and integrated patterns on manufactured carpet squares for home and commercial use. It is purchased for $325,000. It is expected to last 8 years and has a salvage value of $30,000. Increased before tax cash flow due to this dyer is $87,500 per year. Milliken's tax rate is 40%, and the after-tax MARR is 12%. Develop tables using a spreadsheet to determine the ATCF for each year and the after-tax PW, AW, IRR, and ERR after 8 years.
Use straight-line depreciation (no half-year convention).
Use MACRS-GDS and state the appropriate property class.
Use double declining balance depreciation (no half-year convention, no switching).
PW AW IRR ERR a. $ $ % % b. $ $ % % c. $ $ % %Explanation / Answer
a.
Straight Line Depreciation
ATCF each year = Savings after tax + Tax Savings on Depreciation
= 87500 x(1-0.4) + 36875 x 0.40
= $67250
PW = 67250 x 4.968 - 325000
= $9098