A proposed project will provide the capability to produce a specialized product estimated to have a short market (sales) life. Based on an after-tax analysis using the PW method, what minimum amount of equivalent uniform annual revenue is required to justify the project economically?
Capital investment is $1,060,000. (This includes land and working capital.) The cost of depreciable property, which is part of the $1,060,000 total estimated project cost, is $400,000. Assume, for simplicity, that the depreciable property is in the MACRS (GDS) three-year property class. The analysis period is three years. Annual operating and maintenance expenses are $678,000 in the first year, and they increase at the rate of 8% per year (i.e., 7 = 8%) thereafter. Estimated MV of depreciable property from the project at the end of three years is $320,000 Federal income tax rate = 24%, state income tax rate = 5%. MARR (after taxes) is 12% per year. Use the half-year time convention for depreciation in the last year. GDS Recovery Rates (x) Year 3-year Property Class 1 0.3333 2 0.4445 3 0.1481 4 0.0741 Discrete Compounding; i=12% Single Payment Uniform Series Compound Compound Sinking Amount Present Amount Present Fund Factor Worth Factor Factor Worth Factor Factor To Find F To Find P To Find F To Find P To Find A Given P Given F Given A Given A Given F FIP PIF FIA PIA AIF 1.1200 0.8929 1.0000 0.8929 1.0000 1.2544 0.7972 2.1200 1.6901 0.4717 1.4049 0.7118 3.3744 2.4018 0.2963 1.5735 0.6355 4.7793 3.0373 0.2092 1.7623 0.5674 6.3528 3.6048 0.1574 N Capital Recovery Factor To Find A Given P AIP 1.1200 0.5917 0.4163 0.3292 0.2774 1 2 3 4 5 Capital investment is $1,060,000. (This includes land and working capital.) The cost of depreciable property, which is part of the $1,060,000 total estimated project cost, is $400,000. Assume, for simplicity, that the depreciable property is in the MACRS (GDS) three-year property class. The analysis period is three years. Annual operating and maintenance expenses are $678,000 in the first year, and they increase at the rate of 8% per year (i.e., 7 = 8%) thereafter. Estimated MV of depreciable property from the project at the end of three years is $320,000 Federal income tax rate = 24%, state income tax rate = 5%. MARR (after taxes) is 12% per year. Use the half-year time convention for depreciation in the last year. GDS Recovery Rates (x) Year 3-year Property Class 1 0.3333 2 0.4445 3 0.1481 4 0.0741 Discrete Compounding; i=12% Single Payment Uniform Series Compound Compound Sinking Amount Present Amount Present Fund Factor Worth Factor Factor Worth Factor Factor To Find F To Find P To Find F To Find P To Find A Given P Given F Given A Given A Given F FIP PIF FIA PIA AIF 1.1200 0.8929 1.0000 0.8929 1.0000 1.2544 0.7972 2.1200 1.6901 0.4717 1.4049 0.7118 3.3744 2.4018 0.2963 1.5735 0.6355 4.7793 3.0373 0.2092 1.7623 0.5674 6.3528 3.6048 0.1574 N Capital Recovery Factor To Find A Given P AIP 1.1200 0.5917 0.4163 0.3292 0.2774 1 2 3 4 5
