Aerospace products acquired new multispindle

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Reference no: EM131070501

A manufacturer of aerospace products acquired a new multispindle, multi-turret turning center for $250,000. The machine will generate new revenue of $80,000 per year. Operating costs for the machine will average $10,000 per year. The machine will be depreciated using the MACRS method, with a recovery period of 7 years. The useful life of the turning center is 10 years; it is estimated that its salvage value will be $25,000 at this time. The company uses an after-tax MARR rate of 12% and is in the 35% tax bracket.

1. Determine whether the (discounted) payback period occurs within the useful life of the turning center.

Now, suppose that the project duration is 5 years and that an estimate of the value of the equipment cannot be obtained from the marketplace.

2. Estimate the salvage value using the appropriate technique.

Reference no: EM131070501

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