A proposed cost-saving device has an installed cost of $630,000. The device will
ID: 2778790 • Letter: A
Question
A proposed cost-saving device has an installed cost of $630,000. 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 $45,000, the marginal tax rate is 34 percent, and the project discount rate is 10 percent. The device has an estimated year 5 salvage value of $70,000. What level of pretax cost savings do we require for this project to be profitable? Refer to Table 10.7. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
A proposed cost-saving device has an installed cost of $630,000. 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 $45,000, the marginal tax rate is 34 percent, and the project discount rate is 10 percent. The device has an estimated year 5 salvage value of $70,000. What level of pretax cost savings do we require for this project to be profitable? Refer to Table 10.7. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Explanation / Answer
440107=(S-C)*(.66)*(PVIFA10%,5)
S-C =175909 ie level of pretax cost savings
Rate Depreciation Tax 1 630000 33.33% 209979 0.34 71392.86 2 630000 44.45% 280035 0.34 95211.9 3 630000 14.81% 93303 0.34 31723.02 4 630000 7.41% 46683 0.34 15872.22