In: Finance
It is desired to compare the after-tax economics of two mutually exclusive alternatives with the following before-tax data for a study period (planning horizon) of 4 years:
Semiautomatic Machine Automatic Machine
First cost $100,000 $150,000
Useful life 4 years 5 years
Market value at end of useful life $0 $0
Annual before-tax cash disbursements $50,000 $15,000
Annual cash revenues $110,000 $90,000
MARR (after tax) = 15% p.a.
Study Period = 4 years
Both alternatives are to be depreciated using straight-line depreciation over the life of the machine. It is assumed that the automatic machine can be sold at the book value after 4 years,
I.e. 20% of the first cost of the machine after 4 years of depreciation.
A 40% tax rate is assumed.
Which alternative is preferred on the basis of net present value?
Can i have a detailed answer, please! And also not in excel.