In: Finance
DEF Corporation is considering purchasing a new production machine at a cost of $10,000,000. The machine is 7-year MACRS property. The corporate tax rate is a flat 21%, and the applicable discount rate is 6%.
a. Compute the after-tax cost of the machine to DEF.
b. Compute the after-tax cost of the machine to DEF, assuming that the machine qualifies for immediate expensing.
c. Comment.
MACRS percentages for depreciation each year are as follows:
Year % 1 14.29 2 24.49 3 17.49 4 12.49 5 8.93 6 8.92 7 8.93 8 4.46