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

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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