ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Chapter 13, Problem 53P
To determine
To find:After tax
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Problem 17.049: Calculate the after-tax AW of two alternatives
A European candy manufacturing plant manager must select a new irradiation system to ensure the safety of specific ingredients,
while being economical. The two alternatives available have the following estimates:
System
First Cost, $
CFBT, $ per Year
Life, Years
A
-150,000
60,000
3
B
-80,000
20,000
5
Check my w
The company is in the 35% tax bracket and assumes classical straight line depreciation for alternative comparisons performed at an
after-tax minimum acceptable rate of return (MARR) of 8% per year. A salvage value of zero is used when depreciation is calculated;
however, system B can be sold after 5 years for an estimated 8% of its first cost. System A has no anticipated salvage value. Determine
which is more economical using an annual worth (AW) analysis worked by hand.
The annual worth analysis for system A is determined to be $
The annual worth analysis for system B is determined to…
A firm must decide between two designs. Their effective income tax rate is 33%, and MACRS depreciation is used. If the desired after-tax return on investment is 12% per year, which design should be chosen?
Design B
$2,040,000
$1,150,000
Design A
$940,000
$910,000
Capital investment
MV at end of useful life
$260,000
5 years
Annual revenues less expenses
$410,000
MACRS property class
Useful life
5 years
6 years
7 years
Click the icon to view the GDS Recovery Rates (r,) for the 5-year property class.
Click the icon to view the interest and annuity table for discrete compounding when the MARR is 12% per year.
Calculate the AW value for the Design A.
AWA(12%) = $ (Round to the nearest dollar.)
Calculate the AW value for the Design B.
AWg(12%) = $
(Round to the nearest dollar.)
Based on the AW values,
should be chosen.
Years
1
2
3
4
5
6
n
Defender
-3200
-2,500
-2,650
-3,300
Annual Cost -Annual Tax
for defender
0.892857083
1.690051017
2.401831268
3.037349346
3.6047762
4.111407323
PW= @12 Challenger
-2857.142667 -5800
-4,225
-6,365
-10,023
0
0
-23,470
-4230
-3200
-3500
-4,000
-5,500
Annual Cost-Annual Tax
for defender
0.892857142
1.690051017
2.401831268
3.037349346
3.6047762
4.111407323
PW @15%
-5178.57142
-7148.9158
-7685.86006
-10630.7227
-14419.1048
-22612.7403
-67675.9151
1. For this defender/challenger study, what is the (lowest) Annual Equivalent Cost of the best feasible alternative with
formula:
1. $17,200
2. $18,400
3. $21,200
4. $16,800
Chapter 13 Solutions
ENGR.ECONOMIC ANALYSIS
Ch. 13 - Prob. 1QTCCh. 13 - Prob. 2QTCCh. 13 - Prob. 3QTCCh. 13 - Prob. 4QTCCh. 13 - Prob. 5QTCCh. 13 - Prob. 1PCh. 13 - Prob. 2PCh. 13 - Prob. 3PCh. 13 - Prob. 4PCh. 13 - Prob. 5P
Ch. 13 - Prob. 6PCh. 13 - Prob. 7PCh. 13 - Prob. 8PCh. 13 - Prob. 9PCh. 13 - Prob. 10PCh. 13 - Prob. 11PCh. 13 - Prob. 12PCh. 13 - Prob. 13PCh. 13 - Prob. 14PCh. 13 - Prob. 15PCh. 13 - Prob. 16PCh. 13 - Prob. 17PCh. 13 - Prob. 18PCh. 13 - Prob. 19PCh. 13 - Prob. 20PCh. 13 - Prob. 21PCh. 13 - Prob. 22PCh. 13 - Prob. 23PCh. 13 - Prob. 24PCh. 13 - Prob. 25PCh. 13 - Prob. 26PCh. 13 - Prob. 27PCh. 13 - Prob. 28PCh. 13 - Prob. 29PCh. 13 - Prob. 30PCh. 13 - Prob. 31PCh. 13 - Prob. 32PCh. 13 - Prob. 33PCh. 13 - Prob. 34PCh. 13 - Prob. 35PCh. 13 - Prob. 36PCh. 13 - Prob. 37PCh. 13 - Prob. 38PCh. 13 - Prob. 39PCh. 13 - Prob. 40PCh. 13 - Prob. 41PCh. 13 - Prob. 42PCh. 13 - Prob. 43PCh. 13 - Prob. 44PCh. 13 - Prob. 45PCh. 13 - Prob. 46PCh. 13 - Prob. 47PCh. 13 - Prob. 48PCh. 13 - Prob. 49PCh. 13 - Prob. 50PCh. 13 - Prob. 51PCh. 13 - Prob. 52PCh. 13 - Prob. 53PCh. 13 - Prob. 54PCh. 13 - Prob. 55PCh. 13 - Prob. 56P
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