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 $100,000 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 $100,000 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 $13,219.32.
C. No, the company should not invest in the new equipment as the NPV is -$92,152.01.
D. No, the company should not invest in the new equipment as the NPV is -$53,598.86
E. Yes, the company should invest in the new equipment as the NPV is $246,401.14.
Please write all steps, correct answer will be upvoted!
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