Determine the annual after-tax net cash flow

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Reference no: EM131057146

A highway contractor is considering buying a new trench excavator that costs $300,000 and can dig a 3-foot-wide trench at the rate of 16 feet per hour. The annual number of feet to dig each year is 6,400. With the machine adequately maintained, its production rate will remain constant for the first three years of operation and then decrease by 2 feet per hour for each additional year. The maintenance and operating costs will be $50 per hour. The contractor will depreciate the equipment with a five-year MACRS. At the end of five years, the excavator will be sold for $75,000. The contractor will earn an additional annual revenue of $100,000 with this new machine. Assuming the contractor’s marginal tax rate is 38% per year, determine the annual after-tax net cash flow. Is the new trench excavator a good investment if the company’s MARR is 15%?

Reference no: EM131057146

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