Question
Bridgton Golf Academy is evaluating new golf practice equipment. The Dimple-Max equipment costs $64,000, has a three-year life, and costs $6,000 per year to operate.
Bridgton Golf Academy is evaluating new golf practice equipment. The "Dimple-Max" equipment costs $64,000, has a three-year life, and costs $6,000 per year to operate. The operation cost occurs at the end of each year. The relevant discount rate is 12 percent. Assume that the straight-line depreciation method is used and that the equipment is fully depreciated to zero. Furthermore, assume the equipment has a market value of $7,500 at the end of the project's life. The relevant tax rate is 34 percent.
a) What is the after-tax salvage value of this equipment?
b) What is the equivalent annual cost (EAC) of this equipment?
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