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Consider the case of Scorecard Corporation: Scorecard Corporation is considering the purchase of new manufacturing equipment that will cost $30,000 (including shipping and installation). Scorecard
Consider the case of Scorecard Corporation: Scorecard Corporation is considering the purchase of new manufacturing equipment that will cost $30,000 (including shipping and installation). Scorecard can take out a four-year, $30,000 loan to pay for the equipment at an interest rate of 7.20%. The loan and purchase agreements will also contain the following provisions: The annual maintenance expense for the equipment is expected to be $300. The equipment has a four-year depreciable life. The Modified Accelerated Cost Recovery System's (MACRS) depreciation rates for a three-year asset are 33.33%, 44.45%, 14.81%, and 7.41%, respectively. The corporate tax rate for Scorecard is 35%. Note: Scorecard Corporation is allowed to take a full-year depreciation tax-saving deduction in the first year. Based on the preceding information, complete the following tables: Value Annual tax savings from maintenance will be: $105 Year 1 Year 2 Year 3 Year 4 Tax savings from depreciation Net cash flow Thus, the net present value (NPV) cost of owning the asset will be: -$44,341 -$21,090 -$20,591 $25,520
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