1. Annadark Corp is considering the purchase of a machine that costs $1,300,000. The machine will...

80.2K

Verified Solution

Question

Finance

1. Annadark Corp is considering the purchase of a machine thatcosts $1,300,000. The machine will be depreciated using a five yearMACRS schedule with half-year convention (Refer to the MACRSSchedule handout). Annadark plans to sell the machine after fouryears and expects the sale price at that time to be $540,000.Corporate tax rate of 21% applies to Annadark. This machine isexpected to add $450,000 in revenue each year. a. What will be thedepreciation on the machine for each of the six years? b. What willbe the book value of the machine at the end of four years? c. Whatwill be the after tax salvage value of the machine, if the tax rateis 21%? BONUS: Annadark also has the option of leasing the machinefor a total after-tax cost of $198,000 per year. Should Annadarklease the machine or purchase the machine if its after-tax cost forlong term borrowing is 3.4%?

Answer & Explanation Solved by verified expert

4.2 Ratings (469 Votes)

Ans Depreciation for 6 years give belowBook value of machine at end of 4th year 224640After tax salvage value of machine 473774Since NPV of 927818 of leasing the machine is higher than NPVof 608547 of buying the machine Hence Annadark See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

1. Annadark Corp is considering the purchase of a machine thatcosts $1,300,000. The machine will be depreciated using a five yearMACRS schedule with half-year convention (Refer to the MACRSSchedule handout). Annadark plans to sell the machine after fouryears and expects the sale price at that time to be $540,000.Corporate tax rate of 21% applies to Annadark. This machine isexpected to add $450,000 in revenue each year. a. What will be thedepreciation on the machine for each of the six years? b. What willbe the book value of the machine at the end of four years? c. Whatwill be the after tax salvage value of the machine, if the tax rateis 21%? BONUS: Annadark also has the option of leasing the machinefor a total after-tax cost of $198,000 per year. Should Annadarklease the machine or purchase the machine if its after-tax cost forlong term borrowing is 3.4%?