What interest rate would be used for discounting purposes

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Reference no: EM131506853

Question: A certain engine lathe can be purchased for $150,000 and depreciated over three years to a zero salvage value with the SL method. This machine will produce metal parts that will generate revenues of $80,000 (time zero dollars) per year. It is a policy of the company that the annual revenues will be increased each year to keep pace with the general inflation rate, which is expected to average 5%/year (f = 0.05). Labor, materials, and utilities totaling $20,000 (time 0 dollars) per year are all expected to increase at 9% per year. The firm's effective income tax rate is 50%, and its after-tax MARR (im) is 26% per year. Perform an actual-dollar (A$) analysis and determine the annual ATCFs of the preceding investment opportunity. Use a life of three years and work to the nearest dollar. What interest rate would be used for discounting purposes?

Reference no: EM131506853

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