What interest rate would be used for discounting purposes

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Reference no: EM131563435

A certain engine lathe can be purchased for $150,000 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 $85,000 (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 4 %/year (f=0.04). Labor, materials, and utilities totaling $15,000 (time 0 dollars) per year are all expected to increase at 9?% per year. The firm's effective income tax rate is 45 %, and its after-tax MARR is 26 % per year. Perform an actual-dollar (A$) analysis and determine the annual ATCFs of the preceding investment opportunity. Use a life of three years. What interest rate would be used for discounting purposes?

Reference no: EM131563435

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