Contemporary Engineering Economics 6th Edition by Chan Park

Exercise 42

A fully automatic chucker and bar machine is to be purchased for $45,000. The money will be borrowed with the stipulation that it be repaid with six equal end-of-year payments at 12% compounded annually. The machine is expected to provide annual revenue of $13,000 for six years and is to be depreciated by the MACRS seven-year recovery period. The salvage value at the end of six years is expected to be $4,000. Assume a marginal tax rate of 35% and a MARR of 15%.
(a) Determine the after-tax cash flow for this asset over six years.
(b) Determine whether the project is acceptable on the basis of the ERR criterion.