Compare the following two Alternatives using MACRS Depreciation and Present Wort
ID: 2647478 • Letter: C
Question
Compare the following two Alternatives using MACRS Depreciation and Present Worth AFTER taxes. MARR = i = 6% ITR = 40 %. A company wishes to decide between two approaches to providing transportation in a city which has sea port facilities and good highways. Alternative A requires buying 4 GENRAl PURPOSE TRUCKS at a cost of $25,000 each. Alternative B requires buying a small ocean going Tug (TUG BOAT) at a cost of $200,000. Both the trucks and the Tug will be kept or onger ian the period we are considering. The Before Tax Revenue Flow for the combine e trucks is $ 30,000 per year. The Before Tax Revenue Flow for the Tug >s $ 80,000 per yea Analyze the alternatives for a period of n = 8 years.Explanation / Answer
Answer: MACRS DEPRECIATION:
ALTERNATIVE A: The cost of truck is 25000*4 = 100000.
5-year property.
Automobiles, taxis, buses, and trucks.
ALTERNATIVE B: TUG: The cost of tug is = $200000.
10-year property.
Vessels, barges, tugs, and similar water transportation equipment.
PRESENT WORTH AFTER TAX:
ALTERNATIVE A: TRUCK:
PARTICULARS TIME P.V.F(6%) AMOUNT ($) PRESENT VALUE ($)
CASH OUTFLOW:
Cost of truck 0 1 100000 100000
P.V.C.O (A) 100000
CASH INFLOW:
Cash flow after tax
(30000*(1-40%)=18000 1-8 6.20979 18000 111776.22
P.V.C.I (B) 111776.22
N.P.V (B-A) 11776.22
ALTERNATIVE B: TUG
PARTICULARS TIME P.V.F(6%) AMOUNT ($) PRESENT VALUE ($)
CASH OUTFLOW:
Cost of tug 0 1 200000 200000
P.V.C.O (A) 200000
CASH INFLOW:
Cash flow after tax
(80000*(1-40%)=48000 1-8 6.20979 48000 298069.92
P.V.C.I (B) 298069.92
N.P.V (B-A) 98069.92
Advise: Alternative B is adopted as it has higher N.P.V.
YEARS MACRS CALCULATION AMOUNT ($) 1 100000*20% 20000 2 100000*32% 32000 3 100000*19.20% 19200 4 100000*11.52% 11520 5 100000*11.52% 11520 6 100000*5.76% 5760Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.