Question
A manager is in the process of making a decision about purchasing a machine that would have a five year life. The machine would be
A manager is in the process of making a decision about purchasing a machine that would have a five year life. The machine would be depreciated at a rate of $300,000 per year for tax purposes. The company is subject to a 40% tax rate. The benefits of this machine will be in its ability to save the company labor cost in a labor market of limited supply. Investments of this nature are required to generate inflation free annual rates of return of 12%. The manager learned that the average annual rate of inflation expected during the next five years for costs to be incurred for this project would be 3.5714% (.035714).
What will the difference be between the machines NPVs, inflation free (IF) or inflation adjusted (IA), and which NPV would be higher?
Group of answer choices
$99,300: IA is higher
$39,720: IF is higher
$99,300: IF is higher
$39,720: IA is higher
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Auditing In The Food Industry From Safety And Quality To Environmental And Other Audits
Authors: M Dillon, C Griffith
1st Edition
1855734508, 978-1855734500
