How do I calculate the values (0.0892 + 0.0893 + 0.0446) In Part A? 2. Some new

Question

How do I calculate the values (0.0892 + 0.0893 + 0.0446) In Part A?

2. Some new equipment under consideration will cost $2,300,000 and will be used for 5 years. Net working capital will experience a one time increase of $674,000 if the equipment is purchased The equipment is expected to generate annual revenues of $1,800,000 and annual costs of $576,000. The project falls under the seven-year MACRs class for tax purposes, the tax rate is 36 percent, and the cost of capital is 15 percent. The project's fixed assets can be sold for $552,000 at the end of the project's life. a. What is the book value of the equipment at the end of the project's life? Round your answer to the nearest whole dollar. $513,130 $2,300,000 x (0.0892 +0.0893 +0.0446)

Explanation / Answer

7 Years MACRS allows depreciate asset in 8 years at depreciation rates shown below.

Since, asset is used for first 5 years, remaing 3 years rates depreciation will be left as book value. i.e. 8.92%+8.93%+4.46% for Years 6-8 respectively.

That is how 0.0892, 0.0893 and 0.0446 was used.

Year 1 14.29% Year 2 24.49% Year 3 17.49% Year 4 12.49% Year 5 8.93% Year 6 8.92% Year 7 8.93% Year 8 4.46%

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