For the following problem, please explain how to derrive the answer (After-Tax P

Question

For the following problem, please explain how to derrive the answer (After-Tax Present Worth of the DULL alternative). The problem statement along with all relavent data is given below. Also, the answers to the problem are given at the bottom of the page as reference to verify correctness.

An engineering company is considering the purchase of a new high speed color laser plotter.

They will choose between 2 alternatives represented by the economic data in the table below:

Straight Line (n=3) with half-year convention

1Salvage Values at the end of year 4.

2Net Income for only the first three years. No income in year four.

Determine which laser plotter should be selected using an After-Tax Present Worth Analysis,

and a MARR of 8% per year. Assume an effective tax rate (itr) of 40%. Assume that depreciation

recapture will be computed for the (Hateway) alternative at the rate of 40% of it's Salvage Value.

Please show all calculations in the format given by the empty tables below:

DULL

HATEWAY

ANSWERS;

DULL ATCF// PW = $187

HATEWAY ATCF // PW = $2,443

Alternative Dull Hateway Initial Cost $12,000 $14,000 Salvage Value1 $1,200 $1,800 Net Income2 $5,000 per year $7,000 per year Study Period 4 years 4 years Depreciation Method

Straight Line (n=3) with half-year convention

MACRS with 3-year recovery period

Explanation / Answer

Statement showing NPV of DULL

Statement showing depriciation

Statement showing NPV of HATEWAY

Statement showing depriciation

Particulars 1 2 3 4 Total Net income 5000 5000 5000 Less: depriciation(12000-1200)/4 1800 3600 3600 1800 PBT 3200 1400 1400 -1800 Tax @ 40% 1280 560 560 -720 PAT 1920 840 840 -1080 Add: depriciation 1800 3600 3600 1800 Cash flow 3720 4440 4440 720 Salvage value (1200) 1200 Total cash inflow 3720 4440 4440 1920 PVIF @ 8% 0.926 0.857 0.794 0.735 PV 3444 3807 3525 1411 12187 Less: initial investment 12000 NPV 187

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