Some new production machinery has a first cost of $100,000 and a useful life of

Question

Some new production machinery has a first cost of $100,000 and a useful life of 10 years. Its estimated O&M costs are $10,000 the first year, which will increase annually by $4,000. The asset’s before tax market value will be $50,000 at the end of the first year and then will decrease by $5,000 annually. This property is a 7-year MACRS property. The company uses a 6% after-tax MARR and is subject to a combined federal/state tax rate of 40% Determine:

a) The after-tax cash flows.

b) The property’s economic service life after tax

Show your calculations.

Note: Can you please show me the step by step solution and if used an excel sheet, please provide it or email it to malzubi93@gmail.com

Thank you!

Explanation / Answer

The after-tax cash flows years s no particulars 1 2 3 4 5 6 7 8 10 1 market value of asset 50000 45000 40000 35000 30000 25000 20000 15000 10000 2 O&m Costs 10000 14000 18000 22000 26000 30000 34000 38000 42000 3 Depreciation 14286 14286 14286 14286 14286 14286 14286 0 0 4 income(1-2-3) 25714 16714 7714 -1286 -10286 -19286 -28286 -23000 -32000 5 tax 10286 6686 3086 -514 -4114 -7714 -11314 -9200 -12800 6 income after tax (4-,+5) 15429 10029 4629 -1800 -14400 -27000 -39600 -32200 -44800 7 ADD Depreciation 14286 14286 14286 14286 14286 14286 14286 0 0 8 cash flows after tAX 29714 24314 18914 12486 -114 -12714 -25314 -32200 -44800 9 INITIAL PURCHASE -100000 0 0 0 0 0 0 0 0 cash flows -70286 24314 18914 12486 -114 -12714 -25314 -32200 -44800

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