Scott Investors, Inc., is considering the purchase of a ($500,000) computer that has an economic life of
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Scott Investors, Inc., is considering the purchase of a \($500,000\) computer that has an economic life of five years. The computer will be depreciated based on the system enacted by the Tax Reform Act of 1986. (See Table 7.3 for the depreciation schedules.) The market value of the computer will be \($100,000\) in five years. The use of the computer will save five office employees whose annual salaries are \($120,000.\) It also contributes to lower net working capital by \($100,000\) when they buy the computer. The net working capital will be recovered at the end of the period. The corporate tax rate is 34 percent. Is it worthwhile to buy the computer if the appropriate discount rate is 12 percent?
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