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Plant Company is contemplating the purchase of a new plece of equipment for $40.000. Plant is in the 40% income tax bracket Predicted annual after-tax
Plant Company is contemplating the purchase of a new plece of equipment for $40.000. Plant is in the 40% income tax bracket Predicted annual after-tax cash inflows from this Investment are $17,000 $13,000. $8,000, $4,000 and $6,000 for years 1 through 5, respectively. The firm uses straight-line depreciation with no residual value at the end of five years. Assume that the hurdle rate for accepting new capital investment projects for the company is 4%, after-tax (Note: PV 51 factors for 4% are as follows. for year 1=0.962, for year 2 = 0.925, for year 3 = 0889, for year 4 = 0.855, for year 5 = 0.822: the PV annulty factor for 4% 5 years - 4452) At an after-tax discount rate of 4% the estimated net present value (NPV) of the proposed investment is (rounded to the nearest hundred dollars) Multiple Choice ($13,000) ($10,300) ($7.300) G o (54.000) $3,800
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