A manufacturing company has some existing semiautomatic production equipment that it is considering replacing. This equipment has...

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A manufacturing company has some existing semiautomaticproduction equipment that it is considering replacing. Thisequipment has a present MV of $55,000 and a BV of $27,000. It hasfive more years of depreciation available under MACRS? (ADS) of$6,000 per year for four years and $3,000 in year five. (Theoriginal recovery period was nine? years.) The estimated MV of theequipment five years from now is $19,000. The total annualoperating and maintenance expenses are averaging $27,000 peryear.
New automated replacement equipment would then be leased.Estimated annual operating expenses for the new equipment are$12,000 per year. The annual leasing costs would be $24,300. TheMARR? (after taxes) is 5?%per? year,t equals=50?%, and theanalysis period is five years.?(Remember?:The ownerclaims? depreciation, and the leasing cost is an operating?expense.) Based on an? after-tax analysis, should the new equipmentbe? leased? Base your answer on the IRR of the incremental cashflow.
a. The actual IRR of the incremental cash flow is ?
b. The challenger should be leased or rejected?
?

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A manufacturing company has some existing semiautomaticproduction equipment that it is considering replacing. Thisequipment has a present MV of $55,000 and a BV of $27,000. It hasfive more years of depreciation available under MACRS? (ADS) of$6,000 per year for four years and $3,000 in year five. (Theoriginal recovery period was nine? years.) The estimated MV of theequipment five years from now is $19,000. The total annualoperating and maintenance expenses are averaging $27,000 peryear.New automated replacement equipment would then be leased.Estimated annual operating expenses for the new equipment are$12,000 per year. The annual leasing costs would be $24,300. TheMARR? (after taxes) is 5?%per? year,t equals=50?%, and theanalysis period is five years.?(Remember?:The ownerclaims? depreciation, and the leasing cost is an operating?expense.) Based on an? after-tax analysis, should the new equipmentbe? leased? Base your answer on the IRR of the incremental cashflow.a. The actual IRR of the incremental cash flow is ?b. The challenger should be leased or rejected??