Firms effective income tax rate and its after-tax marr

Reference no: EM13683916

A certain engine lathe can be purchased for $390,000 and depreciated over three years to a zero salvage value with the SL method. This machine will produce metal parts that will generate revenues of $260,000 (time zero dollars) per year. It is a policy of the company that the annual revenues will be increased each year to keep pace with the general inflation rate, which is expected to average 6.5 percent per year. Labour, materials, and utilities totalling $65,000 (time 0 dollars) per year are all expected to increase at 12 percent per year. The firm’s effective income tax rate is 40%, and its after-tax MARR (i_m) is 30 percent per year. Decide the after-tax equivalent present worth. Utilize life of three years and work to the nearest dollar.

Reference no: EM13683916

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