49. Specialized production equipment is purchased for $125,000. The equipment qualifi es as 5-year equipment for MACRS-GDS depreciation. Suppose 40 percent of the investment capital is borrowed at an annual compound rate of 18 percent and the loan is repaid over a 4-year period. The BTCF profi le for the acquisition, shown below, includes a $30,000 salvage value at the end of the 5-year planning horizon. A 40 percent tax rate applies. Develop tables using a spreadsheet to determine the ATCF for each year and the after-tax PW, AW, IRR, and ERR values if the after-tax MARR is 10 percent.

EOY BTCF 0 –$125,000 1 50,000 2 60,000 3 70,000 4 80,000 5 120,000 Determine the PW of the ATCFs using:

a. Loan payment Plan 1.

b. Loan payment Plan 3.

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.