Detroit Assembly is considering the acquisition of a new machine that would reduce operating costs by $90,000 per year throughout its life. The machine has a cost of $300,000 and has an expected salvage value of $25,000 at the end of 4 years. For tax purposes, Detroit plans to write off the $300,000 cost over the four-year life of the machine, using DDB, producing a tax shield from depreciation of $51,000, $25,500, $12,750, and $4,250 for years 1-4, respectively. The company has a 34 percent tax rate. The company's required rate of return is 12%.
Required (Round all calculations to the nearest dollar.):
a. Compute the after-tax operating cost savings per year.
b. Determine the tax cost or tax savings related to the sale of the machine at the end of its useful life.
c. Prepare a schedule computing the net present value of Detroit Assembly's investment in the machine, using a spreadsheet or financial calculator.

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The Answer of Detroit Assembly is considering the acquisition of a new machine that would reduce operating costs by $90,000 per year throughout its life. The machine has a cost of $300,000 and has an expected salvage value of $25,000 at the end of 4 years. For tax purposes, Detroit plans to write off the $300,000 cost over the four-year life of the machine, using DDB, producing a tax shield from depreciation of $51,000, $25,500, $12,750, and $4,250 for years 1-4, respectively. The company has a 34 percent tax rate. The company's required rate of return is 12%.
Required (Round all calculations to the nearest dollar.):
a. Compute the after-tax operating cost savings per year.
b. Determine the tax cost or tax savings related to the sale of the machine at the end of its useful life.
c. Prepare a schedule computing the net present value of Detroit Assembly's investment in the machine, using a spreadsheet or financial calculator.

Detroit Assembly Is Considering the Acquisition of a New Machine