54. A subsidiary of AEP places in service electric generating and transmission line equipment at a cost of $3,000,000 with half of it borrowed at 11% over 8 years.

It is expected to last 30 years with a salvage value of $250,000. The equipment will increase net income by $500,000 in the fi rst year, increasing by 2.4% each year thereafter. The subsidiary’s tax rate is 40% and the after-tax MARR is 9%. There is some concern that the need for this equipment will last only 10 years and need to be sold off for $550,000 at that time. Develop tables using a spreadsheet to determine the ATCF for each year, and the after-tax PW, AW, IRR and ERR after only 10 years to see if the venture would be worthwhile economically if (for parts

a, b, and

c, use straight-line depreciation (no halfyear convention), and for parts

d, e, and

f, use MACRS-GDS depreciation):

a,d. The loan is paid back using Plan 1.

b,e. The loan is paid back using Plan 2.

c,f. The loan is paid back using Plan 3.