Question
Dorothy & George Company is planning to acquire a new machine at a total cost of $42,300. The machines estimated life is 6 years and
Dorothy & George Company is planning to acquire a new machine at a total cost of $42,300. The machines estimated life is 6 years and its estimated salvage value is $600. The company estimates that annual cash savings from using this machine will be $9,000. The companys after-tax cost of capital is 7% and its income tax rate is 40%. The company uses straight-line depreciation (non-MACRS-based). (Use Appendix C, Table 1 and Appendix C, Table 2.) (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign. Round "Payback period" to 2 decimal places and all other answers to the nearest dollar amount.) Required: 1. What is this investments net after-tax annual cash inflow? 2. Assume that the net after-tax annual cash inflow of this investment is $6,000; what is the payback period in years? 3. Assume that the net after-tax annual cash inflow of this investment is $6,000; what is the net present value (NPV) of this investment? 4. What are the minimum net after-tax annual cost savings that make the proposed investment acceptable (i.e., the dollar cost savings that would yield an NPV of $0)?
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