Question
Your company has just signed a 3-year nonrenewable contract with the city of New Orleans for earthmoving work. You are investigating the purchase of a
Your company has just signed a 3-year nonrenewable contract with the city of New Orleans for earthmoving work. You are investigating the purchase of a piece of land and also heavy construction equipment for this job. The investment for the land will be 400,000. The equipment costs $280,000 and qualifies for GDS 5 year depreciation. At the end of the 3-year contract you are expected to be able to sell the equipment for $70,000. Also, the land is estimated to be sold at 450,000 after the 3 years of ownership. If the projected marginal benefits of the project is $80,000 per year, is the contract worthwhile of undertaking? The federal tax rate is 32% and the state tax rate is 6% and the after tax MARR is 12% per year.
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