Question
Radar Railway is determining whether to purchase a new rail setter, which has a base price of $432,000 and would cost another $52,000 to install.
Radar Railway is determining whether to purchase a new rail setter, which has a base price of $432,000 and would cost another $52,000 to install. The setter falls into the MACRS 3-year class, and it would be sold after three years for $220,000. Using the setter requires a $22,000 increase in net working capital. Although it would have no effect on revenues the setter should save the firm $185,000 per year in before-tax operating costs (excluding depreciation). Radar's marginal tax rate is 40% and its required rate of return is 14%. Should the setter be purchased? Explain.
Depreciation: Year 1 = $159,720
Year 2 = $217,800
Year 3 = $72,600
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started