Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Erlangen Corporation needs a new machine that will cost $50,000. It will run for 5 years and the firm will depreciate it on a straight
Erlangen Corporation needs a new machine that will cost $50,000. It will run for 5 years and the firm will depreciate it on a straight line basis, with no resale value. The machine will add $14,000 annually to Erlangen's earnings before taxes. The proper discount rate is 12% and the tax rate is 32%. Should Erlangen install the machine?
The instructor provided the following answer, $-4147, no.
My attempt is in the table below. My answer does not match.
Year Outlay/Inflow Depreciation Taxable Income Income Taxxes After Tax Add Back Dep Discount PV Income Factor 0 $(50,000.00) $ 1 $ 14,000.00 $10,000.00 $ 2 $ 14,000.00 10,000.00 $ 3 $ 14,000.00 $10,000.00 $ 4 $ 14,000.00 $10,000.00 $ 5 14,000.00 $ 0 $(50,000.00) 4,000.00$1,280.00 2,720.00 12,720.00 0.892857143 11,357.14 4,000.00$1,280.00 2,720.00 12,720.00 0.797193878 10,140.31 4,000.00$1,280.00 2,720.00 12,720.00 0.711780248 $ 9,053.84 4,000.00$1,280.00 $ 2,720.00 12,720.00 0.635518078 $ 8,083.79 4,000.00$4,480.00$9,520.00 $ 9,520.00 0.567426856 5,401.90 $ (5,963.01) NPVStep by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started