Elias wants to perform an after tax evaluation of equivalent methods to electros
ID: 2753904 • Letter: E
Question
Elias wants to perform an after tax evaluation of equivalent methods to electrostatically remove airborne particulate matter from clean rooms used to package liquid pharmaceutical products. Using the information shown, MACRs depreciation with n= 3 years, a 5 year study period, after tax MARR = 7% per year, and Te= 34% and Excel, he obtained the results AWa=$-2176 and AWb = $3545. Any tax effects when the equipment is salvaged were neglected. Method B is the better method. Use classical SL depreciation with n=5 years to select the better method. When solving the problem use MARCS annual worth analysis only and Include depreciation recapture. (please show work and use excel)
Method A
Method B
First Cost $
-100000
-150000
Salvage value $
10000
20000
Savings $ per year
35000
45000
AOC, $ per year
-15000
-6000
Expected life, years
5
5
Method A
Method B
First Cost $
-100000
-150000
Salvage value $
10000
20000
Savings $ per year
35000
45000
AOC, $ per year
-15000
-6000
Expected life, years
5
5
Explanation / Answer
Method A
Annual worth analysis = NPV/PVIFA(7%,5)
Annual worth analysis = -13654/5.1002
Annual worth analysis = -2677.15
Method B
Annual worth analysis = NPV/PVIFA(7%,5)
Annual worth analysis = 6046/5.1002
Annual worth analysis = 1185.44
Use classical SL depreciation with n=5 years
Decision :Method B is the better method
Year 0 1 2 3 4 5 Initial Investment -100000 Salvage Value 10000 Annual Depreciation (SL = (100000-10000)/5) 18000 18000 18000 18000 18000 Savings $ per year 35000 35000 35000 35000 35000 AOC, $ per year 15000 15000 15000 15000 15000 Net Income before tax 2000 2000 2000 2000 2000 Tax expenses 680 680 680 680 680 Net Income 1320 1320 1320 1320 1320 Cash Flow -100000 19320 19320 19320 19320 29320 PV Factor @ 7% 1.00000 0.93458 0.87344 0.81630 0.76290 0.71299 Present value -100000 18056 16875 15771 14739 20905 Net Present Value -13654Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.