A manufacturer plans to spend $3,700,000 on equipment. The e…
A manufacturer plans to spend $3,700,000 on equipment. The equipment will be depreciated using the MACRS method with a 5-year recovery period. The manufacturer plans to keep the equipment indefinitely and uses a study period of 6 years for these types of purchases. Annual operating expenses are expected to be $50,000 in year 1 and increase by $70,000 each year. Gross income is expected to be $900,000 in year 1 and increase by $170,000 each year. A portion of the after-tax cash flow analysis is shown below. The manufacturer ’s combined marginal tax rate is 39%. Year GI OE CFBT Dt TI Taxes CFAT 0 −$3,700,000 1 $807,100 2 $1,070,000 $120,000 (a) $1,184,000 (b) (c) (d) 3 $917,556 4 $867,734 5 $928,734 6 $906,617 Round to nearest dollar. For Year 2, what is the cash flow before taxes, CFBT? $ For Year 2, what is the taxable income, TI? $ For Year 2, what is the amount of taxes, Taxes? $ For Year 2, what is the cash flow after taxes, CFAT? $ What is the after-tax Rate of Return over the study period? % (one decimal) If the company’s MARR is 11%, should they invest in this equipment, YES or NO?