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The life of both alternatives is 10 years, the effective income tax rate is 40%, and the after-tax MARR is 9% per year. Both alternatives
The life of both alternatives is 10 years, the effective income tax rate is 40%, and the after-tax MARR is 9% per year. Both alternatives qualify as seven-year MACRS (G DS) properties. Make a recommendation which alternative to select based on an aftertax analysis. Annual expenses for two alternatives have been estimated on different bases as follows: End of Year Alternative A (Annual Alternative B (Annual Expenses Expenses Estimated in Actual Estimated in Real Dollars with Dollars) b=0) 1 $120,000 $100,000 2 $132,000 $1 10,000 3 $148,000 $120,000 4 $160,000 $130,000 If the average general price inflation rate is expected to be 4% per year and the real rate of interest is 8% per year, show which alternative has the least negative equivalent worth in the base period? Explain. [Hintz Find PW values for Actual and Real dollars; Use correct interest rate values to find respective PW values]
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