Question
Giggles, Inc. is considering the purchase of a new laughing gas machine. The machines base price is $70,000, and it would cost another $15,000 to
Giggles, Inc. is considering the purchase of a new laughing gas machine. The machines base price is $70,000, and it would cost another $15,000 to install it and get it ready for use. The machine falls into the MACRS 5-year class or it can be depreciated straight-line over 6 years to a zero salvage value. The machine will be sold after 3 years for $30,000. The firms marginal federal-plus-state tax rate is 40 percent and it uses a 9 percent cost of capital to evaluate projects of this nature.
a. Calculate the depreciation schedule using straight-line depreciation.
b. Calculate the depreciation schedule using MACRS depreciation.
c. Calculate the after-tax salvage value of the machine if the straight line depreciation method is used.
d. Calculate the after-tax salvage value of the machine if the MACRS depreciation method is used.
e. Find the NPV of the machine if straight line depreciation is used
f. Find the NPV of the machine if MACRS depreciation is used.
with explainnaitoan pleasse.
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