Determine whether the following contract described below is worthwhile ofundertaking after taxes if at the end of the 3-year of ownership the contract, you expect to sellboth depreciable equipment and land. Use present worth analysis under MARR = 8% andeffective tax rate. Total investment:Equipment 1 investment:Equipment 2 investment:Annual benefit:Useful life:Land market value (EOY 3):Equipment 1 market value (EOY 3):Equipment 2 market value (EOY 3):$1,000,000 (includes land and two depreciable assets)$250,000$350,000$150,000 (increased by $50,000 every year)8 years$450,000$120,000$200,000Depreciation:GDS 7Federal tax rate:25%State tax rate:15.6%Local tax rate: 5.22%• The MARCS depreciation percentages (GDS 7) for each year are as follows: 14.29; 24.49;17.49; 12.49; 8.93; 8.92; 8.93; 4.46.

A minimum acceptable rate of return (MARR) is the minimal profit an investor expects to make from an…

Answered: Determine whether the following…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Determine whether the following contract described below is worthwhile of
undertaking after taxes if at the end of the 3-year of ownership the contract, you expect to sell
both depreciable equipment and land. Use present worth analysis under MARR = 8% and
effective tax rate.

Total investment:
Equipment 1 investment:
Equipment 2 investment:
Annual benefit:
Useful life:
Land market value (EOY 3):
Equipment 1 market value (EOY 3):
Equipment 2 market value (EOY 3):
$1,000,000 (includes land and two depreciable assets)
$250,000
$350,000
$150,000 (increased by $50,000 every year)
8 years
$450,000
$120,000
$200,000
Depreciation:
GDS 7
Federal tax rate:
25%
State tax rate:
15.6%
Local tax rate: 5.22%
• The MARCS depreciation percentages (GDS 7) for each year are as follows: 14.29; 24.49;
17.49; 12.49; 8.93; 8.92; 8.93; 4.46.

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