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Bridgton Golf Academy is evaluating new golf practice equipment. The "Dimple-Max" equipment costs $110,000, has a...

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Finance

Bridgton Golf Academy is evaluating new golf practice equipment.The "Dimple-Max" equipment costs $110,000, has a 4-year life, andcosts $9,100 per year to operate. The relevant discount rate is 12percent. Assume that the straight-line depreciation method is usedand that the equipment is fully depreciated to zero. Furthermore,assume the equipment has a salvage value of $8,300 at the end ofthe project’s life. The relevant tax rate is 24 percent. All cashflows occur at the end of the year. What is the equivalent annualcost (EAC) of this equipment?

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4.0 Ratings (444 Votes)
The Aftertax salvage Value Aftertax salvage value Salvage Value x 1 Tax Rate 8300 x 1 024 8300 x 076 6308 Operating Cash Flow OCF Operating Cash Flow OCF Pretax Cost Savings1 Tax Rate    See Answer
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Bridgton Golf Academy is evaluating new golf practice equipment.The "Dimple-Max" equipment costs $110,000, has a 4-year life, andcosts $9,100 per year to operate. The relevant discount rate is 12percent. Assume that the straight-line depreciation method is usedand that the equipment is fully depreciated to zero. Furthermore,assume the equipment has a salvage value of $8,300 at the end ofthe project’s life. The relevant tax rate is 24 percent. All cashflows occur at the end of the year. What is the equivalent annualcost (EAC) of this equipment?

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