Reference no: EM131351687
A telephone company is considering building a new automated switching distribution substation with a useful life of 20 years to support new suburban developments. The substation is located in a state in which the combined tax rate is 40%, and the telephone company uses a 12% real interest MARR to assess capital investment projects. Estimated real dollar revenues and costs are as follows:
Category/Amount
Building initial cost /$1,157,000
Building salvage cost /$ 250,000
Equipment initial cost /$ 775,000
Equipment cost year 2 /$ 150,000
Equipment salvage value /$ 36,500
Annual revenues /$ 650,000 year 1
Revenue arithmetic gradient /$ 20,000 years 2 to 5
Annual revenues /$ 750,000 years 6 to 20
Annual operating expenses /$ 185,000 first 10 years $ 230,000, years 11 to 15
$ 275,000, years 16 to 20
The substation will be put into service on the first day of the telephone company’s fiscal year. Using MACRS depreciation, what will be the telephone company’s after tax equivalent uniform annual worth for the substation?
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