marginal tax rate in project evaluation 671221

Marginal Tax Rate in Project Evaluation

Boston Machine Shop expects to have an annual taxable income of $325,000 from its regular business over the next six years. The company is considering acquiring a new milling machine during year 0. The machine’s price is $200,000, installed. The machine falls into the MACRS five year class, and it will have an estimated salvage value of $30,000 at the end of six years. The machine is expected to generate additional before tax revenue of $80,000 per year.

(a) What is the total amount of economic depreciation for the milling machine if the asset is sold at $30,000 at the end of six years?

(b) Determine the company’s marginal tax rates over the next six years with the machine.

(c) Determine the company’s average tax rates over the next six years with the machine.