Compute the depreciation schedule and yearly Book Value for the new Turbo Churn using MACRS.

Return for a moment to the snake incident described at the beginning of this chapter. What…
July 6, 2020
Incarceration of women
July 6, 2020

s Butter and Egg business is considering the purchase of a new Turbo Churn for $25000. This Show more Grannys Butter and Egg business is considering the purchase of a new Turbo Churn for $25000. This churn is a special handling device for food and beverage manufacture. It has an estimated life of four years and a salvage value of $5000. The new churn is expected to increase net income by $8000 per year for each of the four years of use before taxes. Granny works with an MARR of 10% and uses MACRS depreciation. Her income tax rate is 40%. a) WithoutconsideringtheeffectoftaxesshouldGranny buy the Turbo Churn? Do a pre-tax NPV analysis. b) Compute the depreciation schedule and yearly Book Value for the new Turbo Churn using MACRS. Now you decided whether or not Granny should buy a new Turbo Churn that would last for 4 years. Suppose Granny purchased the churn but then one year after doing that the manufacturer announces a new Supercharged Churn. The manufacturer offers all its customers the option of exchanging their old Turbo Churns for a Supercharged Churn for an additional $12000. The new Supercharged Churn is expected to last for three years and have a salvage value of $8000. It will increase net income by $4000 per year MORE than the Turbo Churn i.e. $12000 per year versus $8000 per year Even though Granny still has three years worth of life left on her Turbo Churn should she pay the extra $12000 for a Supercharged Churn? Use the same MARR of 10% Show less


 

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