Using an MARR of 18%, calculate the before and after-tax rate of return on the...
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Accounting
Using an MARR of 18%, calculate the before and after-tax rate of return on the replacement proposal.
13-47 The Quick Manufacturing Company, a large profitable corporation, may replace a production machine tool. A new machine would cost $37,000, have an 8-year useful life, and have no salvage value. For tax purposes, 3-year MACRS depreci- ation would be used. The existing machine tool cost $40,000 4 years ago, and it has been completely depreciated. The tool could be sold now to a used equipment dealer for $10,000 or be kept in ser- vice for another 8 years. It would then have no salvage value. The new machine tool would save about $9000 per year in operating costs compared to the existing machine. Assume a 20% combined state and federal tax rate. Compute the before-tax rate of return on the replacement proposal of installing the new machine rather than keeping the existing machine
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