The following information is for a proposed project that willprovide the capability to produce a specialized product estimatedto have a short market (sales) life before new technology, known tobe in the R&D stage, makes it obsolete:
• Capital investment of $1,000,000, composed of $420,000 ofdepreciable equipment and $580,000 of non-depreciable capital(land, working capital, etc.)
• Assume that the depreciable property is in the MACRS (GDS)three-year property class.
• The study period is 3 years
• Annual operating and maintenance costs are $636,000 in thefirst year and increase at a rate of 6% per year.
• The estimated salvage value at the end of year 3 is$280,000
• The effective tax rate (combined federal and state) is 38%
• Assume that the recovered capital (salvage value – book value)is taxed at the same rate as taxable revenue
• After tax MARR is 10% Based on an after-tax analysis using netpresent value, what is the minimum amount of uniform annual revenuerequired to justify the project economically?
**
| You might find iteasier to track things if year 3 is divided | |
| into a revenue column and asalvage value column and then add those together** Use of Excel ispreferred. |
