A proposed cost-saving device has an installed cost of $650,000. The device will

Question

A proposed cost-saving device has an installed cost of $650,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes. The required initial net working capital investment is $47,000, the marginal tax rate is 35 percent, and the project discount rate is 9 percent. The device has an estimated Year 5 salvage value of $72,000. What level of pretax cost savings do we require for this project to be profitable? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)). Pre Tax Cost Savings = ?

Explanation / Answer

Let us Assume Sales = S and Cost = C

At NPV = 0 Savings are equal to Costs

Pretax cost savings = 175375.92

Calculation of Depreciation (MACRS 3 Year) Year Cost of Asset (A) Dep Rate (B) Depreciation (A*B) 1 650000 33.33% 216645 2 650000 44.45% 288925 3 650000 14.81% 96265 4 650000 7.41% 48165

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---