A proposed cost-saving device has an installed cost of $665,000. The device will
ID: 2761681 • Letter: A
Question
A proposed cost-saving device has an installed cost of $665,000. The device will be used in a five-year project but is classified as three-year MACRS (MACRS Table) property for tax purposes. The required initial net working capital investment is $54,000, the marginal tax rate is 40 percent, and the project discount rate is 14 percent. The device has an estimated Year 5 salvage value of $79,000.
What is the depreciation each year of the project? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)
What is the aftertax salvage value of the equipment? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
What level of pretax cost savings do we require for this project to be profitable? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
Required:
What is the depreciation each year of the project? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)
Explanation / Answer
Answer:
Answer: Aftertax salvage value=$79000*(1-0.40)
=$47400
Year Calculation Depreciation 1 665000*0.3333 221644.5 2 665000*0.4444 295526 3 665000*0.1482 98553 4 665000*0.0741 49276.5