Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please show all work on excel with references thank you. Adams Corporation is planning to buy a machine that will cost $40,000 and depreciate it

Please show all work on excel with references thank you. Adams Corporation is planning to buy a machine that will cost $40,000 and depreciate it on a straight-line basis over a 5-year period with no residual value. The tax rate of Adams is 30%, and the proper discount rate is 15%. The earnings before taxes from the machine are uncertain, but their expected value is $15,000 a year, with a standard deviation of $3,000.

  1. Find the break-even earnings before tax.
  2. Calculate the probability that the machine will be a profitable investment. Adams requires the probability of being profitable to be more than 60% to buy the machine. Based on your calculation, should Adams buy the machine?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

More Books

Students also viewed these Finance questions

Question

7. What is the VOP?

Answered: 1 week ago