After 4 years of use, procter and gamble has decided to replace capital equipmen

Question

After 4 years of use, procter and gamble has decided to replace capital equipment used on its Zest bath soap line. Cash flow data is tabulated in $1000 units, and MACRS 3 year depreciation was used. After tax MARR is 10% per year and Te is 35% in the US. Calculate MACRS depreciation and estimate the CFAT series over the 4 years. Neglect any tax impact caused by the $700 salvage received in year 4. (please use excel and use the salvage value in year 4 to find capital gains)

Year

0

1

2

3

4

Purchase $

-1900

Gross income$

800

950

600

300

Expenses $

-100

-150

-200

-250

Salvage $

700

Year

0

1

2

3

4

Purchase $

-1900

Gross income$

800

950

600

300

Expenses $

-100

-150

-200

-250

Salvage $

700

Explanation / Answer

The ATCF (without consideration of the salvage value recovered) is

The after-tax cash flow after the salvage value is included in the fourth year's cash flow is

Note: The salvage value is included but its tax impact has been neglected as instructed in the question.

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