Please use the MACRS to depreciate Your company wants to build a new manufacturing facility which...

Please use the MACRS to depreciate

Your company wants to build a new manufacturing facility which will cost $2 million for plant building and $800,000 for machinery. It will have a net annual cash flow of $750,000 for the next 10 years. You could build it in your US location where your total incremental tax rate would be 45%. However, you are also considering building it in Ireland with incremental tax rate 12.5% . Calculate the after-tax present worth of adding a new manufacturing facility in each of the two countries and determine where it would be better to place the investment. Assume that the interest rate is 8% per year. You will need to research tax methods and depreciation rules in Ireland, and compare with those of the US. Use these results to recommend where to make the investment. Make sure to discuss the effects of the financial issues in the decision process. Present your analysis as an appendix to your report. PLEASE BE MINDFUL OF THE 8% INTEREST RATE PR/YEAR

Expert Solution

Solution:

Given

company details which wants to build a new manufacturing facility

Net present value:

It is the difference between the cash inflows and the cash outflows

In NPV the present value PV of the future inflows are calculated to make a better analysis

This is required as in the future the inflation rate will go up and the purchasing power of dollar will go down.

ie

as NPV is positive in IRELAND the investment should be made in ireland.

Rahul Sunny answered 1 year ago

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