A company, in the 40% combined federal/state tax bracket, is considering the purchase of a...
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Accounting
A company, in the 40% combined federal/state tax bracket, is considering the purchase of a CAD system at a price of $55,000. It is anticipated that it will yield benefits of $10,000 in Year 1, $15,000 in Year 2, $20,000 in Year 3, and $20,000 in Year 4. The CAD system is to be depreciated using the MACRS method, with a recovery period of 5 years. It is expected that the CAD system will be sold at the end of the fourth year at 20% of its purchase price.
Can the purchase be economically justified if the after-tax MARR is 10%? Justify your answer.
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