Management is considering purchasing an asset for $20,000 that would have a useful life of 10 years

Question:

Management is considering purchasing an asset for $20,000 that would have a useful life of 10 years and no salvage value. For tax purposes, the entire original cost of the asset would be depreciated over 10 years using the straight-line method. The asset would generate annual net cash inflows of $12,000 throughout its useful life. The project would require additional working capital of $6,000, which would be released at the end of the project. The company's tax rate is 40% and its discount rate is 13%.

Questions:

a. What is the annual NET (after tax) Cash Inflows?

b. What is the annual Depreciation Deduction?

c. What is the Net Present Value for this project?

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...