Purchasing a new barge for use

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Reference no: EM131810394

Mid-America Shipping is considering purchasing a new barge for use on its Ohio River routes. The new barge will cost $13.2 million and is expected to generate an income of $7.5 million the first year (growing $1M each year), with additional expenses of $2.6 million the first year (growing $400,000 per year). If Mid-America uses MACRS, is in the 38% tax bracket, and has a MARR of 12%, what is the present worth of the first 4 years of after-tax cash flows from this barge? Would you recommend that Mid-America purchase this barge? (Hints: Remember that all expenses are deducted from income prior to determining the taxes. Round to the nearest tenth of a million dollars.) Contributed by Paul R. McCright, University of South Florida Solving for Unknowns

Reference no: EM131810394

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