Find estimated probabilities of each performance level

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Reference no: EM131507204

Question: An energy conservation project is being evaluated. Four levels of performance are considered feasible. The estimated probabilities of each performance level and the estimated before-tax cost savings in the first year are shown in the following table:

Assume the following:

• Initial capital investment: $100,000 [80% is depreciable property and the rest (20%) are costs that can be immediately expensed for tax purposes].

• The ADS under MACRS is being used. The ADS recovery period is four years.

• The before-tax cost savings are estimated to increase 6% per year after the first year.

• MARRAT = 12% per year; the analysis period is five years; MV5 = 0.

• The effective income tax rate is 40%. Based on E(PW) and after-tax analysis, should the project be implemented?

Reference no: EM131507204

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