The market value of equipment is negligible at end of year

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Reference no: EM131519656

The Greentree Lumber Company is attempting to evaluate the profitability of adding another cutting line to its present sawmill operations. They would need to purchase two more acres of land for $25,000 (total). The equipment would cost $140,000 and could be depreciated over a five-year recovery period with the MACRS method. The new equipment is expected to increase gross revenue by $51,000 per year for five years, and operating expenses will be $18,000 annually for five years cutting line will be closed down after five years. It is expected that this cutting line will be closed down after five years. The firm's effective income tax rate is 53%. If the company's after-tax MARR is 4% per year, is this a profitable investment? Assume that land recovered at original cost of $25,000 at the end of five years. The market value of equipment is negligible at the end of year 5.

Reference no: EM131519656

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