a construction company is considering acquiring a new earthmover the purchase price 671261

A construction company is considering acquiring a new earthmover. The purchase price is $100,000, and an additional $25,000 is required to modify the equipment for special use by the company. The equipment falls into the MACRS seven year classification (the tax life), and it will be sold after five years (the project life) for $50,000. The purchase of the earthmover will have no effect on revenues, but them a chine is expected to save the firm $60,000 per year in before tax operating costs, mainly labor. The firm’s marginal tax rate is 40%. Assume that the initial investment is to be financed by a bank loan at an interest rate of 10%, payable annually. Determine the after tax cash flows by using the generalized cash flow approach and the worth of the investment for this project if the firm’s MARR is known to be 12%.