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Capital Budgeting Question. Can you please explain how the professor got ($15,000 - $10,000) *(.34) in the Tax Savings section? Practice Problem 4 EXISTING SITUATION:
Capital Budgeting Question. Can you please explain how the professor got ($15,000 - $10,000) *(.34) in the Tax Savings section?
Practice Problem 4 EXISTING SITUATION: PROPOSED SITUATION: 1 full time mach. operator--salary $20,000/year Fully automated machine: no operator required. Cost of maintenance--$5,000 per year Cost of machine--$55,000 Cost of defects--$5,000 per year installation fee--$5,000 Original cost of old machine---$30,000 Cost of maintenance--$6,000 per year Cost of defects--$2,000 per year Expected life--10 years Age-5 years old Expected life--5 years Expected salvage value--$0 salvage value--$0 Depreciation method--Straight Line Depreciation method -straight Line Current market value--$10,000 Marginal tax rate--34% Required Rate of Return 15% I Using the above information, Evaluate this automated machine project using 1) PP 2) NPV 3) Pl 4) IRR Should this project be accepted? (Note: For this question, please assume that capital gains are taxed at the same 34% as ordinary incomes.)
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