Mr. Agirich of Aggie Farms must choose between two alternative machinery investment programs which will...
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Mr. Agirich of Aggie Farms must choose between two alternative machinery investment programs which will perform equally. The following information is available. Assuming that Mr. Agirich has already determined that he needs to invest in machinery, which machinery system should he choose?
What are the annual gross revenues from System A in the 5th year?
What is the present value of the after-tax net returns for System A?
What is the present value of the tax savings from Depreciation for System A?
\begin{tabular}{l|l|l|} \hline Item & System A & System B \\ \hline Purchase Price & $100,000 & $60,000 \\ \hline Operating Expenses & 5,000 & 12,000 \\ \hline Terminal Value & 20,000 & 20,000 \\ \hline Marginal Tax Rate & 0 & 0 \\ \hline Pretax Discount Rate & 12% & 12% \\ \hline Life of Investment & 8 years & \\ \hline Depreciable Life & 7 & \\ \hline \end{tabular}
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