Equipment for MACRS-GDS depreciation

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Reference no: EM131919703

An investment of $1,250,000 is made in equipment that qualifies as 7-year equipment for MACRS- GDS depreciation. Measured in constant dollars, the investment yields annual returns of $130,000, plus a salvage value of $500,000 at the end of the 10-year planning horizon, 80% of the investment capital is obtained by borrowing money at an annual compound interest rate of 12% and the loan is repaid with 5 annual payments. Each payment is 10% greater than the previous payment. The first payment is made 4 years after receipt of the borrowed capital. The maximum Section 179 deduction and 50% bonus depreciation are taken. A 40% tax rate and 3% inflation rate apply. The ATMARR, is 7%. Determine the after-tax present worth.

Reference no: EM131919703

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