A manufacturer of fabricated metal products has acquired a new plasma table for $37,000. It is projected that the acquisition of this equipment will increase revenue by $10,000 per year. Operating costs for the machine will average $2,600 per year. The machine will be depreciated using the MACRS method, with a recovery period of 7 years. The company uses an after-tax MARR rate of 10% and has an effective tax rate of 30%.
Now, suppose that the duration of the project is six years and that an estimate of the value of the equipment cannot be obtained from the marketplace.
1. What conclusion can be drawn by comparing the results of the before- and after-tax analyses?