An investment plan includes purchasing at the beginning of the year a piece of m

Question

An investment plan includes purchasing at the beginning of the year a piece of machinery costing $134, which will be fully depreciated in the next year, and then salvaged with zero value. The profits for this year are estimated to be $162, and the combined tax rate is 14%.The real interest rate is unknown, but assumed nonnegative. What is the smallest inflation rate at which the overall investment is unprofitable (regardless of real interest)? (Provide your answer as a number, not a percentage, with 0.01 precision.)

Explanation / Answer

The profits before tax = 162

The profits after tax is calculated as = 162*(1-0.14) = 139.32

So the formula is PV = FV/(1+r)^ n . Here n =1, PV = 134, FV =139.32. we need to find r

134 = 139.32/(1+r)

(1+r) = 139.32/134 = 1.0397

1+r =1.0397

r = 0.0397

With a the said precesion, r = 0.04 (Rounded) which is the smallest inflation rate at which  the overall investment is unprofitable

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