Exercise III (After Tax Analysis)

A company invests in an equipment that costs $300k with $40k salvage value and will be depreciated over 8 years according to the DDB method. The equipment could generate revenues of $25k in the first year and increase by 5000$ every year thereafter. The operating and maintenance costs of the equipment are 1200$ in the first year and increase by 10% each year thereafter. The tax rate of the company Income is 32%.

A. Develop the cash flow before tax (CFBT)

B. Apply the RoR Analysis on the CFBT to check if this project is worthy for the company. Assuming that the MARR of the company is 25%.

C. Develop the cash flow after tax (CFAT)

D. Apply the RoR Analysis on the CFAT to check if this project is worthy for the company. Assuming that the MARR of the company is 25%.

E. Compare and justify the answers of B and D.