48. A company purchases a machine for $800,000. The equipment qualifi es as 5-year property for MACRS-GDS depreciation. The machine is paid for by borrowing $500,000, to be repaid over a 5-year period at an annual compound interest rate of 12 percent. Before-tax cash fl ows are as shown on the next page, including a $200,000 salvage value after 5 years. The income tax rate is 40 percent. An MARRAT of 10% applies.

EOY BTCF 0 2$800,000 1 100,000 2 200,000 3 300,000 4 400,000 5 700,000 Determine the PW of the ATCFs using:

a. Loan payment Plan 2.

b. Loan payment Plan 4.

c. State which of the two loan payment plans is preferred, and explain why it is preferred in terms of the relationship between the loan rate and the MARRAT.