Reference no: EM131094562
Mr. Agirich of Aggie Farms must choose between two alternative machinery investment programs which will perform equally. The following information is available. Assuming that Mr. Agirich has already determined that he needs to invest in machinery, which machinery system should he choose?
Item System A System B
Purchase Price $100,000 $60,000
Operating Expenses 5,000 12,000
Terminal Value 20,000 20,000
Marginal Tax Rate 0 0
Pretax Discount Rate 12% 12%
Life of Investment 8 years 4 years
Depreciable Life 7 7
Inflation Rate 0 0
What are the annual gross revenues from System A in the 5th year? A. $100,000 B. $5,000 C. $20,000 D. $12,000 E. None of the above
What is the present value of the after-tax net returns for System A? A. -$24,838 B. $8,078 C. $0 D. $24,838 E. None of the above
What is the present value of the tax savings from Depreciation for System A? A. -$24,838 B. $8,078 C. $0 D. $24,838 E. None of the above
What is Present value of the after-tax terminal value for System A? A. -$24,838 B. $8,078 C. $0 D. $24,838 E. None of the above
What is the net present value for System A? A. -$24,838 B. $8,078 C. $0 D. $24,838 E. None of the above
What is the real annuity equivalent for System A? A. -$24,838 B. -$116,761 C. $23,505 D. $24,838 E. None of the above
What are the annual gross revenues from System B in the 5th year? A. $60,000 B. $12,000 C. $20,000 D. $5,000 E. None of the above
What is the present value of the after-tax net returns for System B? A. -$36,448 B. $12,710 C. $0 D. $36,448 E. None of the above
What is the present value of the tax savings from Depreciation for System B? A. -$36,448 B. $12,710 C. $0 D. $36,448 E. None of the above
What is Present value of the after-tax terminal value for System B? A. -$36,448 B. $12,710 C. $0 D. $36,448 E. None of the above
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: Mr. Agirich of Aggie Farms must choose between two alternative machinery investment programs which will perform equally. The following information is available. What are the annual gross revenues from System A in the 5th year? What is the present val..
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