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Please type answer out, if possible. Answers for (c. d. and e. below) are needed. Capital Budgeting - With Taxes. ABC Manufacturing desires to buy
Please type answer out, if possible. Answers for (c. d. and e. below) are needed.
Capital Budgeting - With Taxes. ABC Manufacturing desires to buy a new piece of equipment to manufacture Bobblehead Dolls just in case the baseball season starts this summer. The machine costs $80,000 and costs $20,000 to install. The Coronavirus pandemic has taught them a lesson and decided against using a just-in-time inventory system. They realized that is good for big companies but they are a small business. Because of the purchase of the equipment, an additional $20,000 of inventory will be necessary. Its estimated useful life is eight years and it will have a salvage value of $8,000. Annual cash savings from the purchase of the machine will be $29,000. The company uses straight line depreciation but does not pay taxes. They use discount rate of 12%. They have income tax rate of 20% and according to the IRS, this asset has a 3 year life and no salvage value (according to IRS). c. Compute the net present value at a 10% required rate of return. d. Compute the profitability index. e. What is the internal rate of returnStep by Step Solution
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