do not take in consideration the things that are written with a pencil just the
ID: 3198235 • Letter: D
Question
do not take in consideration the things that are written with a pencil just the things that are written in computer
XYZ Co. is evaluating the alternative to buy a new machine. The following table shows the data obtained from a supplier: Machine $200,000 15,000 75,000 6 10000 40% of the initial cost Initial cost 4Annual expenses 1 (I Annual revenues 4%. (11) Useful life in years Salvage value selling price in the 4th year | MACRS depreciation method based on a 7-year property is used and the machine will be sold as mentioned on the table. The applicable tax rate is 40% and the after-tax MARR is 10%. Calculating the after-tax net present worth, decide if this machine would be a good investment for the company.Explanation / Answer
Net anual cash flow = Annual cash flow - Annual cash expenses
= 75000 -15000
= 60000
The machine has a negative net present value 0f -$25,800 that makes the machine rejectable investment.
Item Year(s) Amount of cash flow (1) Tax effect(2) After tax cash flow(1x2) 10% factor Present value of cash flow Net annual cash flow 1-6 60,000 0.6 36,000 4.355 156,780 Depreciation tax shield 1-6 10,000 0.4 4,000 4.355 17,420 cost Now (200,000) 200,000 1.000 (200,000) Net present value - 25,800Related Questions
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