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Problem #1 Two types of machine tools are available for performing a particular task in a manufacturing firm. The estimated cost and salvage values are
Problem #1 Two types of machine tools are available for performing a particular task in a manufacturing firm. The estimated cost and salvage values are given as follows: Machine A Machine B Investment $40,000 $50,000 Annual operating cost $4000 $2000 Annual revenues $6000 $7000 Salvage value $5000 $3000 Service life 5 years 8 years Depreciation method MACRS-GDS 5 years MACRS-GDS 5 years Before tax MARR 20% 20% Effective income tax 40% 40% Make a comparison between the 2 machine by developing the after-tax cash flow table on excel. a. For each machine: Calculate the AW, PW, FW, IRR. Which machine should be selected? b. For machine A Calculate the book value at year 5 and the gain/loss on disposal c. for machine B calculate the book value at year 7 and the gain/loss d comment on the results of part b and a
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