Question: The following information is for a proposed project that will provide the capability to produce a specialized product estimated to have a short market (sales) life:
• Capital investment is $1,000,000. (This includes land and working capital.)
• The cost of depreciable property, which is part of the $1,000,000 total estimated project cost, is $420,000.
• Assume, for simplicity, that the depreciable property is in the MACRS (GDS) three-year property class.
• The analysis period is three years.
• Annual operating and maintenance expenses are $636,000 in the first year, and they increase at the rate of 6% per year (i.e., = 6%) thereafter. (See geometric gradient, Chapter 4.)
• Estimated MV of depreciable property from the project at the end of three years is $280,000.
• Federal income tax rate = 34%; state income tax rate = 4%.
• MARR (after taxes) is 10% per year. Based on an after-tax analysis using the PW method, what minimum amount of equivalent uniform annual revenue is required to justify the project economically?