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You are considering the purchase of a new industrial pump that you will use for three...

You are considering the purchase of a new industrial pump that you will use for three years, and it will cost you $40,000 to buy. It will be depreciated using the 3-year MACRS schedule (.33, .45, .15, .07 are the factors) and will be sold at the end of the third year for $8,000. It will also require 3,000 each year in maintenance. If your tax rate is 25% and your cost of capital is 10%, what is the equivalent annual payment for this machine?

Solutions

Expert Solution

where,

i = interest rate

n = life

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

Thus, Annual Equivalent Payment = $13,155.44

Hope this will help, please do comment if you need any further explanation. Your feedback would be appreciated.

jeff jeffy answered 6 months ago
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