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    IRR and After Tax IRR

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    You are considering two mutually exclusive alternatives to perform a specific task. Machine A costs $150,000 and machine B costs $200,000. The first year costs for A are $1,000 and $500 for B. These costs are expected to rise at a rate of 10% per year for the 10 year study period. Both machines qualify as 5 year MACRS (GDS) property. The company's effective tax rate is 50%. Using incremental analysis and after tax analysis, which alternative would you recommend based on the after tax IRR.

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    Solution Summary

    This solution shows step-by-step calculations in an Excel file in an incremental and tax analysis to determine which machine is a better alternative.