Additional earnings-depreciation and taxes


Taylor United is considering overhauling its equipment to meet increased demand for its product. The cost of equipment overhaul is $3.8 million, plus $200,000 in installation costs. The firm will depreciate the equipment modifications under MACRS using a five-year recovery period. Additional sales revenue from the overhaul should amount to $2.2 million per year, and additional operating expenses and other costs (excluding depreciation) will amount to 35 percent of the additional sales. The firm has an ordinary tax rate of 40 percent. What additional earnings, before depreciation and taxes, will result from the overhaul for each of the next six years?

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Finance Basics: Additional earnings-depreciation and taxes
Reference No:- TGS040447

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