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In: Economics

A manufacturer of electronic components acquires a cutting machine (CM) for $400,000. It is estimated that...

A manufacturer of electronic components acquires a cutting machine (CM) for $400,000. It is estimated that the CM will reduce operating costs by $128,000 annually since it is capable of cutting through high- thickness green ceramic ware. It will be depreciated using the MACRS method, with a recovery period of five years. The project period is six years; it is estimated that the CM will have a market value equal to 10% of its purchase price at the end of the project period. This company has an after-tax MARR of 12% and a 25% combined federal/state rate.

a.)Has this asset been correctly classified? Justify your answer (be specific). In subsequent parts, use the depreciation method and classification indicated above regardless of your conclusion.

b.)Compute the after-tax cash flows. Suppose the project ends unexpectedly at the end of the fifth year.

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Rahul Sunny answered 1 year ago
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