A mining corporation purchased $120,000 of
production machinery and depreciated it using 40%
bonus depreciation with the balance using 5-year
MACRS depreciation, a 5-year depreciable life, and
zero salvage value. The corporation is a profitable
one that has a 22% combined incremental tax rate.
At the end of 5 years the mining company
changed its method of operation and sold the
production machinery for $40,000. During the 5
years the machinery was used, it reduced mine
operating costs by $32,000 a year, before taxes. If
the company MARR is 12% after taxes, was the
investment in the machinery a satisfactory one?
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