A construction company has an effective income tax rate of 39%. The company must
purchase one of the following two cement mixers for its new project. The after-tax MARR
is 10% per year. Select a cement mixer on the basis of after-tax present worth analysis
using MACRS with a 5-year recovery period.
Machine Mixer 1 Mixer 2
First costs $22,000 $37,000
Annual benefits $23,000 $25,500
Market Value at the end $2000 $2800
of the useful life
Life years 6 6
A construction company has an effective income tax rate of 39%. The company must
purchase one of the following two cement mixers for its new project. The after-tax MARR
is 10% per year. Select a cement mixer on the basis of after-tax present worth analysis
using MACRS with a 5-year recovery period.
Machine Mixer 1 Mixer 2
First costs $22,000 $37,000
Annual benefits $23,000 $25,500
Market Value at the end $2000 $2800
of the useful life
Life years 6 6
Related textbook solutions
Related questions
1.) Two projects A and B have the potential uniform annual benefits and their associated probabilities of occurrence as shown below.
| EUAB | Probability | EUAB | Probability |
| $1000 | 0.1 | $1500 | 0.2 |
| $2000 | 0.3 | $2500 | 0.4 |
| $3000 | 0.4 | $3500 | 0.3 |
| $4000 | 0.2 | $4500 | 0.1 |
The expected value of these project are:
a. $1,650 and $1,987
b. $2,700 and $2,800
c. $3,650 and $3,245
d. $2,210 and $2,151
2.) An investment opportunity has the potential of generating yearly revenues with the associated probabilities for the next five years as shown below. The salvage value at the end of five years is 0. The potential revenue in any given year is independent of any other year. What are the mean and standard deviation of the present worth, using an interest rate of 12%?
Potential Revenue, $ Probability
20,000 0.30
30,000 0.40
50,000 0.20
60,000 0.10
Select one:
a. $222,480 and $81,503
b. $235,652 and $65,238
c. $111,070 and $38,802
d. $122,570 and $48,901
3.) What is the expected net present worth of the following project assuming a life of 10 years? The project has absolutely no salvage value at the end of the useful life. The company uses an interest rate of 12% to evaluate this project.
| Initial Cost,$ | Probability | Annual Revenue, $ | Probability |
| 30,000 | 0.15 | 7,000 | 0.10 |
| 40,000 | 0.20 | 9,000 | 0.25 |
| 60,000 | 0.30 | 10,000 | 0.30 |
| 80,000 | 0.25 | 12,000 | 0.30 |
| 100,000 | 0.10 | 15,000 | 0.05 |
Select one:
a. $3,705
b. -$2,305
c. -$22,305
d. $4,506
4.) An investment of $18,000 is expected to generate annual revenue of $8.000 throughout the life of the investment. The risk is based on the life of the investment. The estimate of the probability for the duration of the investment is given in the table below.
| Life, Years | 3 | 4 | 5 | 6 |
| Probability | 0.1 | 0.4 | 0.3 | 0.2 |
No matter what the life of the investment might be, there will be no salvage value. Using a value of 15% MARR, what is the risk (standard deviation) associated with this investment?
a. $3.598
b. $4,536
c. $2,528
5.) A city engineer has compiled the following data on a flood damage project. to control the flood, the construction of a small dam will cost $100,000. Based on the estimated damage data collected, what is the expected damage?
| Damage Estimate, $ | Probability |
| 200,000 | 0.30 |
| 100,000 | 0.50 |
| 50,000 | 0.10 |
| 0 | 0.10 |
Select one:
a. $225,550
b. $365,800
c. $215,005
d. $115,000
