Question: A firm must decide between two silicon layer chip designs from Intel. Their effective income tax rate is 40%, and MACRS depreciation is used. If the desired after-tax return on investment is 10% per year, which design should be chosen? State your assumptions.
Design A Design B
Capital investment $1,000,000 $2,000,000
MV at end of useful life $1,000,000 $1,100,000
Annual revenues less $200,000 $400,000
expenses
MACRS property class 5 years 5 years
Useful life 7 years 6 years