This Question: 20 pts 5 of 5 (0 complete) This Test: 100 pts possible fferent de

Question

This Question: 20 pts 5 of 5 (0 complete) This Test: 100 pts possible fferent devices it can purckase to perform a specific task. Device A costs $100,000 initially, whereas device B costs $130,000. It has been estimated that the cost of maintenance will be $6,000 for device A and in the first year. Management expects these period, and its effective income tax rate is 5 the company choose if the after-tax, market-based MARR is 9% per year (r)? $2,500 for device B maintenance costs to increase 10% per year. The company uses a six-year study 5%. Both devices qualify as five-year MACRS GDS property which device should Click the icon to view the interest and annuity table for discrete compounding when i. 9% per year The PW of the Device A is S.(Round to the nearest dollar.) The PW of the Device B is S. (Round to the nearest dollar) Which device should the hospital choose? Choose the correct answer below O Device A O Device B

Explanation / Answer

For Device A:

Initial cost = 100,000

PV of tax saving on depreciation = 11000/1.09 + 17600/1.09^2 + 10560/1.09^3 +             6336/1.09^4 + 6336/1.09^5 + 3168/1.09^6 = 43555.09

PV of maintenance cost = (6000/(0.09 - 0.10)) * ( 1 - 1.10^6 / 1.09^6) = 33794.37

PV of maintenance cost (after-tax) = 33794.37*(1 - 0.55) = 15207.47

Present worth = -100000 + 43555.09 - 15207.47 = -71652.38

Or in terms of cost 71,652.38

Device A is better because it has higher present worth or lower present cost.

Device A 0 1 2 3 4 5 6 Initial cost -100,000 MACRS 20.00% 32.00% 19.20% 11.52% 11.52% 5.76% Depreciation 20000 32000 19200 11520 11520 5760 Tax saving on depreciation @ 55% 11000 17600 10560 6336 6336 3168 Maintenance Cost (increases at 10%) -6000 -6600 -7260 -7986 -8784.6 -9663.06 Maintenance Cost after-tax -2700 -2970 -3267 -3593.7 -3953.07 -4348.38 Net cash flow -100,000 8,300 14,630 7,293 2,742 2,383 -1,180 NPV @ 9% -71,652.37

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.