Question
Supper Corp. is evaluating new equipment that will cost $300,000. The new equipment will provide the company with annual before-tax savings of $110,000 for the
Supper Corp. is evaluating new equipment that will cost $300,000. The new equipment will provide the company with annual before-tax savings of $110,000 for the next five years. The company can depreciate the asset at a CCA rate of 30%. The marginal corporate tax rate is 35% and the required rate of return is 10%. Should the company invest in this new equipment? The salvage value at the end of five years is zero.
a Yes, the company should invest in the new equipment as the NPV is $21,571.59.
b Yes, the company should invest in the new equipment as the NPV is $46,211.70.
c Yes, the company should invest in the new equipment as the NPV is $271,041.25.
d No, the company should not invest in the new equipment as the NPV is -$28,958.75.
e No, the company should not invest in the new equipment as the NPV is -$53,598.86
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