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Your company is comparing two machinery investments: A and B. Your company's real Minimum Attractive Rate of Return (MARR) is 5%. Average annual inflation rate
Your company is comparing two machinery investments: A and B. Your company's real Minimum Attractive Rate of Return (MARR) is 5%. Average annual inflation rate is 1%. The properties of these investments are provided in the following table (all dollar values are in constant dollars): A B Initial Cost $90,000 $125,000 Annual Maintenance cost $5,500/year $21,000/year Annual Sales 4,500 units/year 4,500 units/year Production unit cost $15/unit $10/unit Product unit sale price $40/unit $40/unit Salvage value after 5 years $65,000 $80,000 CCA Rate 35% 35% Service life 3 years 3 years For both alternatives, answer the following questions considering applicable taxes whenever possible: a] Provide the before-tax cash flow diagrams for both alternatives in current dollars. b] Calculate the NPW of both alternatives taking into account all taxes at a tax rate of 40% (i.e., for after-tax cash flow). Half-year rule applies. c] Which alternative is economically better? Your company is comparing two machinery investments: A and B. Your company's real Minimum Attractive Rate of Return (MARR) is 5%. Average annual inflation rate is 1%. The properties of these investments are provided in the following table (all dollar values are in constant dollars): A B Initial Cost $90,000 $125,000 Annual Maintenance cost $5,500/year $21,000/year Annual Sales 4,500 units/year 4,500 units/year Production unit cost $15/unit $10/unit Product unit sale price $40/unit $40/unit Salvage value after 5 years $65,000 $80,000 CCA Rate 35% 35% Service life 3 years 3 years For both alternatives, answer the following questions considering applicable taxes whenever possible: a] Provide the before-tax cash flow diagrams for both alternatives in current dollars. b] Calculate the NPW of both alternatives taking into account all taxes at a tax rate of 40% (i.e., for after-tax cash flow). Half-year rule applies. c] Which alternative is economically better
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