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Evaluate a project that cots $744,000, has an eight year life, and has a salvage value of $35,000. Assume that depreciation is based on a 7-year MACRS over the life of the project.
MACRS for 7 years Yr - %
1 - 14.29%
2- 24.49%
3- 17.49%
4- 12.49%
5- 8.93%
6 - 8.92%
7- 8.93%
8- 4.46%
Sales are projected 65,000 units per year. Sale price per unit is $37, variable cost per unit is $21, and annual fixed costs are $725,000. The firm expects to invest $25,000 in working capital to begin the project. All working capital is to be recovered once the project is complete. The firm's tax rate is 35%, and has a cost of capital of 15.
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You are evaluating two different silicon wafer milling machines. The Techron I costs $213,000, has a three-year life, and has pretax operating costs of $54,000 per year. The Techron II costs $375,000, has a five-year life, and has pretax operating co..
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