Consider a piece of equipment that initially cost 8000 and

Question

Question: Consider a piece of equipment that initially cost $8,000 and has these estimated annual expenses and MV:

End of Year, k            Annual Expenses           MV at End of Year

1                                   $3,000                          $4,700

2                                     3,000                           3,200

3                                     3,500                           2,200

4                                     4,000                           1,450

5                                     4,500                             950

6                                     5,250                             600

7                                     6,250                             300

8                                     7,750                              0

If the after-tax MARR is 7% per year, determine the after-tax economic life of this equipment. MACRS (GDS) depreciation is being used (five-year property class). The effective income tax rate is 40%.