Estimating Cash Flows

11-6. Andre Young, a financial analyst at Rhodes Manufacturing Corporation, is trying to analyze the feasibility of purchasing a new piece of equipment that falls under the MACRS five-year class. The initial investment, including the cost of equipment and its start-up, would be $375,000. Over the next six years, the following earnings before depreciation and taxes (EBDT) will be generated from using this equipment:

End of Year	EBDT ($)
1	120,000
2	90,000
3	70,000
4	70,000
5	70,000
6Rhodess discount rate is 13 percent and the company is in the 40 percent tax bracket. There is no salvage value at the end of year 6. Should Mr. Young recommend acceptance of the project?	70,000