Automated Manufacturers uses high-tech equipment to produce specialized aluminum products for its customers. Each one of these machines costs $1,480,000 to purchase plus an additional $49,000 a year to operate. The machines have a 6-year life after which they can be sold of 10% of the original cost. The equipment is in the 7 year MACRS group. What is the equivalent annual cost of one these machines if the required return is 16 percent and the companys marginal tax rate is 30%?

*Please explain how they got the 198,172 for the tax basis?*

Year	0	1	2	3	4	5	6
Capital Spending	-1,480,000
Operating Cost		-49,000	-49,000	-49,000	-49,000	-49,000	-49,000
Tax		14,700	14,700	14,700	14,700	14,700	14,700
MACRS %		14.29%	24.49%	17.49%	12.49%	8.93%	8.92%
Depreciation		211,492	362,452	258,852	184,852	132,164	132,016
Tax Shield		63,447.60	108,735.60	77,655.60	55,455.60	39,649.20	39,604.80
Tax Basis							198,172
Sale of Asset							148,000
Tax							15,051.60
Total	-1,480,000	29,147.60	74,435.60	43,355.60	21,155.60	5,349.20	168,356.40
NPV@16%	-1,288,447.43
EAC for 6 years	-349,671.58