MACRS DEPRECIATION BY CLASS OF PROPERTY

MACRS $7-$year property $($ex: office furniture and fixtures such as desks, fax machines, lamps, files, chairs$).$

$\backslash$table$[[$Year$,\backslash$table$[[$Rate$],[1]]],[2,14\mathrm{.}29\%$

Triple J Sports projects unit sales for a new athletic training device. Production of the devices will require $$6,500,000$ in net working capital to start and additional net working capital investments each year equal to $15$ percent of the projected sales increase for the following year. Total fixed costs are $$5,900,000$ per year, variable production costs are $$525$ per unit, and the unit price is $$695$ each. The equipment needed to begin production has an installed cost of $$22,500,000.$ Because the devices are intended for professional athletes, this equipment is considered industrial machinery and thus qualifies as seven$-$year MACRS property. In five years, this equipment can be sold for about $10$ percent of its acquisition cost. The company is in the $35$ percent marginal tax bracket and has a required return on all its projects of $18$ percent. The unit sales information and MACRS depreciation schedule follow:

MACRS DEPRECIATION BY CLASS OF PROPERTY

MACRS $7-$year property $($ex: office furniture and fixtures such as desks, fax machines, lamps, files, chairs$).$

$\backslash$table$[[$Year$,$Unit Sales$],[1,98,200],[2,101,800],[3,111,900],[4,98,800],[5,94,500]]$

$\backslash$table$[[$Year$,$Rate$],[1,14\mathrm{.}29\%$