A company is considering a 5-year project to expand production with the purchase

Question

A company is considering a 5-year project to expand production with the purchase of a new automated machine using the latest technology. The new machine would cost $200,000 FOB St. Louis, with a shipping cost of $6,000 to the plant location. Installation expenses of $14,000 would also be required. This new machine would be classified as 7-year property for MACRS depreciation purposes. The project engineers anticipate that this equipment could be sold for salvage for $45,000 at the end of the project. If the corporate tax rate is 27%, what is the after tax salvage cash flow for this new machine at the end of the project? (Answer to the nearest dollar.)

Explanation / Answer

Cost 220000 1 2 3 4 5 6 7 7 year MACRS 14.29% 24.49% 17.49% 12.49% 8.93% 8.92% 8.93% 4.46% Depreciation per year 31438 53878 38478 27478 19646 Cumulative depreciation 31438 85316 123794 151272 170918 A Depreciated value at end of project 49082 B Salvage value 45000 C tax saving (A-B)*27% 1102 D salvage cash flow (B+C) 46102

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