Question: A biotech company has an effective income tax rate of 40%. Recaptured depreciation is also taxed at the rate of 40%. The company must choose one of the following mutually exclusive cryogenic freezers for its tissue samples. The after-tax MARR is 12% per year. Which freezer should be selected based on after-tax present worth?
Freezer 1 Freezer 2
Capital investment $10,000 $30,000
Annual benefit $3,000 $9,000
Depreciation method SL MACRS
Depreciable life 3 years 3 years
IRS approved SV for $2,000 $0
depreciation Useful life 5 years 5 years
Actual MV at end of $2,000 $2,000
useful life