Toys Inc has thought about buying new equipment Ferris wheel. The equipment costs R9 000 000 to purchase, and installation costs an additional R564 000. The equipment has a six-year expected life and will be depreciated using the MACRS seven-year class life. Management anticipates 160 rides per day, with 45 riders on average per ride. The season will last for 130 days per year. The ticket price per rider is expected to be R6.25 in the first year, with an annual increase of 5%. The variable cost per rider will be R1.75, with a total annual fixed cost of R625 000. The ride will be dismantled after six years at a cost of R354 000, and the parts will be sold for R700 000. The capital cost is 8.50%, and the marginal tax rate is 25%. a. Calculate the initial outlay, annual after-tax cash flow for each year, and the terminal cash flow. b. Calculate the NPV, IRR, and MIRR of the new equipment. Also indicate whether the project is acceptable?

What is the depreciation rate for 7 year MACRS?

200%

Note: 7-year class property is depreciated at a 200% declining balance. For the MACRS half-year convention method, it is assumed that the property is used for half of the first year of service and half of the last year of service. Accordingly, the 1st year and 8th-year rates are divided by half.