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12.26 A mining corporation purchased $120,000 of production machinery and depreciated it using 40% bonus depreciation with the balance using 5-year MACRS depreciation, a 5-year

12.26

A mining corporation purchased $120,000 of production machinery and depreciated it using 40% bonus depreciation with the balance using 5-year MACRS depreciation, a 5-year depreciable life, and zero salvage value. The corporation is a profitable one that has a 22% combined incremental tax rate. At the end of 5 years, the mining company changed its method of operation and sold the production machinery for $40,000. During the 5 years, the machinery was used, it reduced mine operating costs by $32,000 a year, before taxes. If the company MARR is 12% after taxes, was the investment in the machinery a satisfactory one?

Answer: 14.8%, investment is satisfactory

Note: Please show the step-by-step on how to find the rate of return after tax.

This is Engineering economic.

Thank you so much!

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