Zeon, a large, profitable corporation, is considering adding some automatic equipment to its production facilities. An investment

Question:

Zeon, a large, profitable corporation, is considering adding some automatic equipment to its production facilities. An investment of $120,000 will produce an initial annual benefit of $29,000, but the benefits are expected to decline $3000 per year, making second year benefits $26,000, third-year benefits $23,000, and so forth. If the firm uses sum-of-years' -digits depreciation, an 8-year useful life, and $12,000 salvage value, will it obtain the desired 6% after-tax rate of return? Assume that the equipment can be sold for its $12,000 salvage value at the end of the 8 years. Also assume a 46% income tax rate for state and federal taxes combined.

Depreciation
Depreciation is an important concept in accounting. By definition, depreciation is the wear and tear in the value of a noncurrent asset over its useful life. In simple words, depreciation is the cost of operating a noncurrent asset producing... 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...