Determine by cash flow analysis present worth of termination/ Econometrics
Five years ago, a company invested in equipment having a 10-year technological life and before-tax cash flows (gross income less expenses) given below. Sales were not as good as projected, and the company is considering terminating the project. The equipment has been depreciated using MACRS with a GDS property class of 7 years. The state in which the firm operates imposes a 10% corporate income tax. The firm has federal taxable income in the $10,000,000 to $15,000,000 bracket and uses a 10% MARR hurdle rate for investments. Determine by annual cash flow analysis the net present worth of terminating the project at the end of year 5. Year Before-tax cash flow 0 -$1,250,000 Initial cost 1 $ 472,700 Actual 2 $ 541,400 Actual 3 $ 537,200 Actual 4 $ 447,700 Actual 5 $ 435,800 Actual $ 350,000 Equipment Market value 6 $ 267,750 Estimated 7 $ 199,700 Estimated 8 $ 199,700 Estimated 9 $ 172,750 Estimated 10 $ 150,000 Estimated $ 50,000 Equipment Salvage value
