A proposed cost-saving device has an installed cost of $535,000. The device will be used in a
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Question:
A proposed cost-saving device has an
installed cost of $535,000. 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 $38,000, the marginal tax rate is 35
percent, and the project discount rate is 12 percent. The device has an
estimated Year 5 salvage value of $50,000. What level of pretax cost savings
do we require for this project to be profitable?
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