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  3. the following information is for a proposed projec

The following information is for a proposed project that will provide the capability to produce a...

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Mechanical Engineering

The following information is for a proposed project that willprovide the capability to produce a specialized product estimatedto have a short market (sales) life before new technology, known tobe in the R&D stage, makes it obsolete:

• Capital investment of $1,000,000, composed of $420,000 ofdepreciable equipment and $580,000 of non-depreciable capital(land, working capital, etc.)

• Assume that the depreciable property is in the MACRS (GDS)three-year property class.

• The study period is 3 years

• Annual operating and maintenance costs are $636,000 in thefirst year and increase at a rate of 6% per year.

• The estimated salvage value at the end of year 3 is$280,000

• The effective tax rate (combined federal and state) is 38%

• Assume that the recovered capital (salvage value – book value)is taxed at the same rate as taxable revenue

• After tax MARR is 10% Based on an after-tax analysis using netpresent value, what is the minimum amount of uniform annual revenuerequired to justify the project economically?

**

You might find iteasier to track things if year 3 is divided
into a revenue column and asalvage value column and then add those together** Use of Excel ispreferred.

Answer & Explanation Solved by verified expert
3.7 Ratings (571 Votes)
For this we have to solve by trail and error as shown belowthe NPV is just positive with a revenue of 814483Year0123Depreciable    See Answer
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