Having some trouble solving this question. If anyone can help it would be great! XYZ Company is considering purchasing an asset for $100,000 that has a 5-year useful life and a $20,000 salvage value. Double declining balance (DDB) depreciation will be used. The asset
will produce $50,000/year in savings but will cost $10,000/year to operate. The company is subject to a 35% federal income tax rate and a 9% state income tax rate. It uses an after-tax MARR of 20%.
(a) Compute the combined (federal + state) income tax rate for XYZ Company. Use this rate for computing after-tax cash flows.
(b) Determine the after-tax cash flows for this investment. Make adjustment in the DDB depreciation charges if necessary in any year in light of the SV of $20k.
(c) Using the after-tax rate of return or present worth, determine if this investment is worth.
(d) Suppose the company sells the asset at the end of the third year for $30,000. Compute the equipment's final book value in Year 3 and the depreciation recapture.