RECOVERY PERIOD CLASS (D) Save Accelerated Cost Recovery System (MACRS) YEAR 3 Y

Question

RECOVERY PERIOD CLASS (D) Save Accelerated Cost Recovery System (MACRS) YEAR 3 YEARS 5 YEARS 7 YEARS 10 YEARS 15 YEARS 20 YEARS 1000 1800 440 1152 03750 07219 06677 1429 1481 0741 1920 1152 1152 1749 1249 05713 0737 0655 0655 0893 0590 0590 04522 10 0655 0590 04461 12 13 0590 04461 04461 0591 16 04461 04462 04461 20 21 04461 02231 Depreciation is expressed as a percent of the asset's cost. These schedules are based on the IRS publication 946 How to Depreciate Property and other details on depreciation are presented later in the chapter. Note that five-year depreciation actually caies over six years because the IRS assumes purchase is made in midyear

Explanation / Answer

Step 1) Initial investment

Step 2) Depreciation

Step 3) WC needs

Step 4) Statement showing NPV

Contribution per unit = 385-270 = $115

WN 1) Terminal value

Particulars Amount Equipment cost 21100000 WC requirement 1610000 Initial investment 22710000

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