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Confused on the depreciated vs expensed. The Balas Manufacturing Company is considering buying an overhead pulley system. The new system has a purchase price of
Confused on the depreciated vs expensed.
The Balas Manufacturing Company is considering buying an overhead pulley system. The new system has a purchase price of $150,000 and it costs $35,000 to install. An estimated annual savings of $95,000 for the six-year project life and MACRS class life of five years are considered. The estimated salvage value is $10,000. The system is expected to enable the company to economize on electric power usage, labor, and repair costs, as well as to reduce the number of defective products made. A total annual operating and maintenance of $40,000 will be realized if the new pulley system is installed. Assuming a marginal tax rate of 40% and MARR of 10% answer the following: e) complete sensitivity analysis: NPV(MARR) if depreciated at MARR = 5%, 10%, and 15% NPV(MARR) if expensed at MARR = 5%, 10%, and 15% Which combination is best and why
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