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A proposed cost- saving device has an installed cost of $735,000. The device will be used...

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Finance

A proposed cost- saving device has an installed costof $735,000. The device will be used in a five year project but isclassified as a three year MACR property for tax purposes. Therequired initial net working capital investment is $55,000, the taxrate is 22 percent and the project discount rate is 9 percent. Thedevice has an estimated Year 5 salvage value of $85,000. What levelof pretax cost savings do we require for this project to beprofitable?

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Transcribed Image Text

A proposed cost- saving device has an installed costof $735,000. The device will be used in a five year project but isclassified as a three year MACR property for tax purposes. Therequired initial net working capital investment is $55,000, the taxrate is 22 percent and the project discount rate is 9 percent. Thedevice has an estimated Year 5 salvage value of $85,000. What levelof pretax cost savings do we require for this project to beprofitable?

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