Use the method incremental cost of the lease
The profitable Palmer Golf Cart Corp. is considering investing $ in special tools for some of
the plastic golf cart components. The present golf cart model will continue to be manufactured and sold
for five years, after which a new cart design will be needed, together with a different set of special tools.
The residual value of the current investment will be zero
The saving in manufacturing costs, owing to the special tools, is estimated to be $ per year for
five years. Assume MACRS THREEYEAR depreciation for the special tools and a combined
income tax rate.
a Find the aftertax rate of return and aftertax payback period for this investment.
b Based on a MARR of is this a desirable investment?
