Question

Consider the following proposed capital investment in an engineering project and determine its

a.​ year-by-year ATCF,

b.​ after-tax AW,

c. annual equivalent EVA.

Assume MACRS depreciation is appropriate with a property class of three years.

Proposed capital investment = $85000

Salvage value​ (end of year​ four) = $0

Annual expenses per year = $26,000

Gross revenues per year = $60000

Useful life = 4 years

Effective income tax rate (t) = 45%

​After-tax MARR (i) = 15% per year

Answer 1

Solution and Explanation:

EOY BTCF Deprec Taxable income Income Tax ATCF

0 -85000 0 0 0 -85000

1 34000 21250 12750 5738 28263

2 34000 21250 12750 5738 28263

3 34000 21250 12750 5738 28263

4 34000 21250 12750 5738 28263

The after-tax AW

The annual equivalent worth of the ATCFs is equals
`=-\$ 85,000(\mathrm{A} / \mathrm{P}, 15 \%, 4)+\$ 28263=-85000 / 2.8549+28263=1510`

The annual equivalent EVA. The after-tax annual worth and the annual equivalent worth of EVA of the project are identical.

therefore, the EVA = 1510