In 2018, you purchased a piece equipment for $125,000. You will use the Straight Line Depreciation method and will use a salvage value of $5,000. The equipment has a depreciable and useful life of five years. The first-year benefit is $20,000 and increases by $5,000 each year thereafter. You sell the equipment at the end of year 5 for $21,000. You are in the 32% tax bracket and ordinary gains/losses are taxed at the same rate.
Answer the following questions:
1. What amount of taxes do you owe on the depreciation recapture (Ordinary Gains tax on the sale of the equipment)?
2. What is the value of the After Tax Cash Flow in year 5?
3. What is the After Tax NPW or the After Tax ROR on the investment?
4. If you have a MARR of 7% is this a good investment?