Problema proposed cost-saving device has an installed cost, Ask an Expert

Accounting

Problem:

A proposed cost-saving device has an installed cost of $730,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes. The required initial net working capital investment is $55,000, the marginal tax rate is 35 percent, and the project discount rate is 9 percent. The device has an estimated year 5 salvage value of $80,000.

Required:

Question: What level of pretax cost savings do we require for this project to be profitable?

Note: Show all workings.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91166001

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