Computing after-tax pw and irr

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Question: Refer to Example. Show that the PW of the annual EVA amounts by the new machinery is the same as the PW of the ATCF amounts ($17,208) given in Table.

Example: Computing After-Tax PW and IRR Certain new machinery, when placed in service, is estimated to cost $180,000. It is expected to reduce net annual operating expenses by $36,000 per year for 10 years and to have a $30,000 MV at the end of the 10th year.

(a) Develop the ATCFs and BTCFs.

(b) Calculate the before-tax and after-tax IRR. Assume that the firm is in the federal taxable income bracket of $335,000 to $10,000,000 and that the state income tax rate is 6%. State income taxes are deductible from federal taxable income. This machinery is in the MACRS (GDS) five-year property class.

(c) Calculate the after-tax PW when the after-tax MARR = 10% per year. In this example, the study period is 10 years, but the property class of the machinery is 5 years. Solve by hand and by spreadsheet.

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Reference no: EM131506309

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