In: Economics
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.
Estimate the MV value of the CM using the appropriate technique. In subsequent parts, assume the estimated MV is $120,000, regardless of the value you obtain here (pg. 2).