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A taxable entity is planning to purchase an equipment that will save 2,000 per year for 5 years. Cost of the equipment is 7,000. For
A taxable entity is planning to purchase an equipment that will save 2,000 per year for 5 years. Cost of the equipment is 7,000. For tax purposes, this machine can be depreciated in 3 years using straight line method. Assume tax rate to be 40% and discount rate to be 9%. Show your work in excel.
a) What is the savings in each of the five years?
b) What is the NPV of the project?
c) Should the entity purchase the equipment?
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