Question
No excel You are considering a proposal from a new supplier. The supplier claims if you replace your current equipment with theirs, you could save
No excel
You are considering a proposal from a new supplier. The supplier claims if you replace your current equipment with theirs, you could save $2000 a year. The new equipment will last three years only, but current equipment will last six more years. The price of the new equipment is $3500 today, and the supplier will charge you $3800 three years later for the same equipment. Salvage value for the equipment is zero. Finally, assume 30% tax rate.
1. Using straight line depreciation, prepare pro forma statements for the next six years.
2. If the appropriate required rate of return is 12% should you accept the offer or not? Why or why not?
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