The simulator in Problem 13.16 will save $600,000 per year in experimental costs.
(a) What is the after-tax IRR?
(b) What is the after-tax IRR if the loan in Problem 13.37 is used to buy the equipment?
(c) Graph the IRR for financing percentages ranging from 0% to 90%.
Problem
The R&D lab of Big Tech Manufacturing will purchase a $1.8M process simulator. It will be replaced at the end of year 5 by a newer model. Use MACRS and a tax rate of 40%. The simulator's salvage value is $.5M.
a) What is the ATCF due to the simulator in year 5?
(b) What is the equipment's after-tax EAC over the 5 years if the interest rate is 10%?