A plant expansion plan calls for the installation of additional production equipment to increase parts production. The equipment costs $200,000 and will generate annual revenues of $100,000. Operation of the equipment requires (annually) $20,000 in labor, $15,000 in material and $5,000 in power and utility costs. The equipment will be classified as a 7-year MACRS property. The company will phase out the equipment at the end of 5 years, at which time it will be sold for $75,000.
a) Find the year-by-year after tax net cash flow for the project at a 35% marginal tax rate based on the net income. Prepare a table similar to Table 10.2 in the text to display your calculations. You may prepare the table either manually or by using Excel.
b) Determine the after-tax net present worth of the project if the firm's MARR is 12%. Be sure to include a cash flow diagram and indicate the formulas used to "solve" the cash flow diagram to find NPW. Do you recommend that the firm make the investment in plant expansion?© BrainMass Inc. brainmass.com September 21, 2018, 4:22 am ad1c9bdddf - https://brainmass.com/economics/macroeconomics/calculating-npw-plant-expansion-515569
Please refer attached file for missing tables.
a) Salvage Value and Gains Tax
Total Depreciation claimed in 5 years =$146,450.00
Purchase Value of Equipment =$200,000.00
Book Value at the ...
The solution depicts the steps to determine the yearly net cash flows and NPW in the given case. Calculations are provided in MS Excel format.