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20-40 New equipment purchase, income taxes. Anna's Bakery plans to purchase a new oven with an 4 LO 5 estimated useful life of four years.
20-40 New equipment purchase, income taxes. Anna's Bakery plans to purchase a new oven with an 4 LO 5 estimated useful life of four years. The estimated pretax cash flows for the oven are as shown in the table 1. a. Total present value of recurthat follows, with no anticipated change in working capital. Anna's Bakery has a 12% after-tax required rate ring after-tax operating savings, of return and a 40% income tax rate. Assume depreciation is calculated on a straight-line basis for accounting purposes using the initial oven investment and estimated terminal disposal value of the oven. Assume all cash flows occur at year-end except for initial investment amounts. Equipment is subject to 20% CCA rate declining balance for income tax purposes. Required 1. Calculate (a) NPV, (b) payback period, and (c) IRR. 2. Compare and contrast the capital budgeting methods in requirement 1
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