Question

An injection molding machine can be purchased and installed for $90,000. It is in the seven-year GDS recovery period and is expected to be kept in service for eight years. It is believed that $10,000 can be obtained when the machine is disposed of at the end of year eight. The net annual value added (i.e., revenues less expenses) that can be attributed to this machine is constant over eight years and amounts to $15,000. An effective income tax rate of 40% is used by the company and the after-tax MARR equals 15% per year.

What is the approximate value of the company's before-tax MARR?

Answer 1

Before tax minimun accepted rate of return = 25%

Step-by-step explanation:

tax rate 40%

after.tax MARR 15%

We need to covnert the after tax rate into before tax.

Everything else is irrelevant for the calculation.

`after-tax = before-tax \: (1-tax\:rate)`

0.15 = before-tax X (1 - 0.40)

0.15/0.60 = .25