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Zeon, a large profitable corporation, is considering adding some automatic equipment in its production facilities. An investment of $500,000 will produce an initial annual benefit

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Zeon, a large profitable corporation, is considering adding some automatic equipment in its production facilities. An investment of $500,000 will produce an initial annual benefit of $157,500, but the benefits are expected to decline $1,000 per year. The firm uses Straight-Line depreciation, a 4 year useful life and $50,000 salvage value. Assume that the equipment can be sold for its $50,000 salvage value at the end of 4 years. Also assume a 46% income tax rate for state and federal taxes combined. The following After-Tax Cash Flow Table has been prepared. Before-Tax Straight-Line Income Taxes Year Cash Flow Depreciation Taxable income at 46% 0 |-500,000 1 157.500 112,500 45,000 20,700 156,500 112,500 44,000 20,240 3 155,500 112,500 |43,000 19,780 4 204,500 112,500 92,000 42,320 After-Tax Cash Flow -500,000 24,300 23,760 N 23,220 49,680 Is it correct? If not, why not? It is correct. It is incorrect. Wrong depreciation used. It is incorrect. The money made when the equipment is sold in not included in the last year's cash flow. It is incorrect. The after-tax cash flow is wrong

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