Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Padre Pio owns a small busines and has taxable income of $150,000. He is considering four mutually exclusive alternative models of machinery. Which machine should

Padre Pio owns a small busines and has taxable income of $150,000. He is considering four mutually exclusive alternative models of machinery. Which machine should be selected on an after-tax basis? The after-tax MARR is 15%. Assume that each machine is MACRS 5-year property and can be sold for a market value that is 25% of the purchase cost, and the project life is 10 years.

Im assuming the taxable income of $150,000 implies a tax rate of 39%.

Model I II III IV
First Cost $9000 $8000 $7500 $6200
Annual Costs 25 200 300 600

The textbook answer is "C has lowest PW cost at $6801"

Please help because I have no idea how to get this answer.

Thanks

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Restructuring And Innovation In Banking

Authors: Claudio Scardovi

1st Edition

331940203X, 978-3319402031

More Books

Students also viewed these Finance questions

Question

Create a decision tree for Problem 12.

Answered: 1 week ago