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A semiconductor foundry is considering the addition of a new machine to one of its processing lines. The initial cost of the machine is $500,000.
A semiconductor foundry is considering the addition of a new machine to one of its processing lines. The initial cost of the machine is $500,000. The addition of the machine is expected to increase the company's profit by $140,000 per year. The service life of the machine is 10 years, and there is no salvage value. The company's corporate tax rate is 51%. Determine the rate of return provided by this machine for the following scenarios: (a) Before taxes with no depreciation. (5 marks) (b) After taxes with no depreciation. (5 marks) (c) After taxes using Straight-Line Depreciation. (5 marks) (d) After taxes using the Sum of the Years' Digits depreciation. In this depreciation scheme, the depreciation allowed in any year k is given by the following equation: dk=N(N+1)2(BSVN)(Nk+1) where B is the basic cost. SVN is the estimated salvage value at the end of year N. N is the depreciable life of the asset in years. The ordinary income tax consequences during year k is given by Tk=t(BTCFkdk)
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