Thoma Pharmaceutical Company may buy DNA testing equipment costing $60,000. This equipment is expected to reduce labor

Question:

Thoma Pharmaceutical Company may buy DNA testing equipment costing $60,000. This equipment is expected to reduce labor costs of clinical staff by $20,000 annually. The equipment has a useful life of five years but falls in the three-year property class for cost recovery (depreciation) purposes. No is expected at the end. The corporate tax rate for Thoma is 38 percent (combined federal and state), and its required rate of return is 15 percent. (If profits after taxes on the project are negative in any year, the firm will offset the loss against other firm income for that year.) On the basis of this information, what is the of the project? Is it acceptable? Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...