A company is considering building a new automated switching distribution substat
ID: 449814 • Letter: A
Question
A company is considering building a new automated switching distribution substation with a useful life of 20 years to support new suburban developments. The substation is located in a state in which the combined tax rate is 40%, and the telephone company uses a 15% real interest MARR to assess capital investment projects. Estimated real dollar revenues and costs are as follows:
The substation will be put into service on the first day of the telephone company’s fiscal year. Using MACRS depreciation, what will be the telephone company’s after tax equivalent uniform annual worth for the substation?
Category Amount Building initial cost $1,157,000 Building salvage cost $250,000 Equipment initial cost $775,000 Equipment cost year 2 $150,000 Equipment salvage value $36,500 Annual revenues $650,000 year 1 Revenue arithmetic gradient $20,000 year 2 to 5 Annual revenues $750,000 year 6 to 20 Annual operating expenses $185,000 first 10 years $230,000 year 11 to 15 $275,000 year 16 to 20Explanation / Answer
Category Amount Building initial cost 1157000 Building salvage cost 250000 Equipment initial cost 775000 Equipment cost year 2 150000 Equipment salvage value 36500 Annual revenues $650,000 year 1 Revenue arithmetic gradient $20,000 year 2 to 5 Annual revenues $750,000 year 6 to 20 Annual operating expenses $185,000 first 10 years $230,000 year 11 to 15 $275,000 year 16 to 20 Per year Depreciation in building $ 45,350.00 Per year Depreciation inequipment $ 43,446.74 Years--> 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Building initial cost $ (1,157,000.00) Equipment $ (775,000.00) $ (150,000.00) Revenue $ 650,000.00 $ 20,000.00 $ 20,000.00 $ 20,000.00 $ 20,000.00 $ 750,000.00 $ 750,000.00 $ 750,000.00 $ 750,000.00 $ 750,000.00 $ 750,000.00 $ 750,000.00 $ 750,000.00 $ 750,000.00 $ 750,000.00 $ 750,000.00 $ 750,000.00 $ 750,000.00 $ 750,000.00 $ 750,000.00 Operating Expenses $ (185,000.00) $ (185,000.00) $ (185,000.00) $ (185,000.00) $ (185,000.00) $ (185,000.00) $ (185,000.00) $ (185,000.00) $ (185,000.00) $ (185,000.00) $ 230,000.00 $ 230,000.00 $ 230,000.00 $ 230,000.00 $ 230,000.00 $ 275,000.00 $ 275,000.00 $ 275,000.00 $ 275,000.00 $ 275,000.00 EBITDA $ 2,767,000.00 $ 355,000.00 $ 205,000.00 $ 205,000.00 $ 205,000.00 $ 935,000.00 $ 935,000.00 $ 935,000.00 $ 935,000.00 $ 935,000.00 $ 520,000.00 $ 520,000.00 $ 520,000.00 $ 520,000.00 $ 520,000.00 $ 475,000.00 $ 475,000.00 $ 475,000.00 $ 475,000.00 $ 475,000.00 Deepreciation building $ 45,350.00 $ 45,350.00 $ 45,350.00 $ 45,350.00 $ 45,350.00 $ 45,350.00 $ 45,350.00 $ 45,350.00 $ 45,350.00 $ 45,350.00 $ 45,350.00 $ 45,350.00 $ 45,350.00 $ 45,350.00 $ 45,350.00 $ 45,350.00 $ 45,350.00 $ 45,350.00 $ 45,350.00 $ 45,350.00 Deepreciation Equipment $ 43,446.74 $ 43,446.74 $ 43,446.74 $ 43,446.74 $ 43,446.74 $ 43,446.74 $ 43,446.74 $ 43,446.74 $ 43,446.74 $ 43,446.74 $ 43,446.74 $ 43,446.74 $ 43,446.74 $ 43,446.74 $ 43,446.74 $ 43,446.74 $ 43,446.74 $ 43,446.74 $ 43,446.74 $ 43,446.74 EBIT $ 2,678,203.26 $ 266,203.26 $ 116,203.26 $ 116,203.26 $ 116,203.26 $ 846,203.26 $ 846,203.26 $ 846,203.26 $ 846,203.26 $ 846,203.26 $ 431,203.26 $ 431,203.26 $ 431,203.26 $ 431,203.26 $ 431,203.26 $ 386,203.26 $ 386,203.26 $ 386,203.26 $ 386,203.26 $ 386,203.26 Earning After Tax(Annual Worth) $ 1,606,921.96 $ 159,721.96 $ 69,721.96 $ 69,721.96 $ 69,721.96 $ 507,721.96 $ 507,721.96 $ 507,721.96 $ 507,721.96 $ 507,721.96 $ 258,721.96 $ 258,721.96 $ 258,721.96 $ 258,721.96 $ 258,721.96 $ 231,721.96 $ 231,721.96 $ 231,721.96 $ 231,721.96 $ 231,721.96
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