Question: You are considering two mutually exclusive alternatives to perform a specific task. Machine A costs $150,000 and machine B costs $200,000. The first year costs for A are $1,000 and $500 for B. These costs are expected to rise at a rate of 10% per year for the 10 year study period. Both machines qualify as 5 year MACRS (GDS) property. The company’s effective tax rate is 50%. Using incremental analysis and after tax analysis, which alternative would you recommend based on the after tax IRR.
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(A)
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(B)
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(C)
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(D)
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(E)
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(F)
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(G)
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Year
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BTCF
(R$)
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Adjustment
(1.10)Year-1
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BTCF
(A$)
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Depreci-ation
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Taxable Income:
(C) - (D)
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Cash Flow for Income Taxes
-t(E)
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ATCF
(A$)
C-D+F
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