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A proposed cost-saving device has an installed cost of $730,000. The device will be used in a five-year project but is classified as three-year MACRS
A proposed cost-saving device has an installed cost of $730,000. 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 $55,000, the marginal tax rate is 35 percent, and the project discount rate is 9 percent. The device has an estimated year 5 salvage value of $80,000. What level of pretax cost savings do we require for this project to be profitable? Refer to chart below.
Property Class Year Three-Year 33.33% 44.45 14.81 7.41 Seven-Year 14.29% 24.49 17.49 12.49 8.93 8.92 8.93 4.46 Five-Year 2 3 4 5 6 7 20.00% 32.00 19.20 11.52 11.52 5.76
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