Some new production machinery has a first cost of $100,000 and a useful life of 10 years. Its estimated O&M costs are $10,000 the first year, which will increase annually by $4,000. The asset’s before tax market value will be $50,000 at the end of the first year and then will decrease by $5,000 annually. This property is a 7-year MACRS property. The company uses a 6% after-tax MARR and is subject to a combined federal/state tax rate of 40% Determine:
a) The after-tax cash flows.
b) The property’s economic service life after tax.
Show your calculations.