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Category > Accounting Posted 24 May 2017 My Price 8.00

Straightforward Capital Budgeting with Taxes; Sensitivity Analysis

12-43    Straightforward Capital Budgeting with Taxes; Sensitivity Analysis Dorothy & George Company is planning to acquire a new machine at a total cost of $30,600. The machine’s estimated life is six years and its estimated salvage value is $600. The company estimates that annual cash savings from using this machine will be $8,000. The company’s after-tax cost of capital is 8 percent and its income tax rate is 40 percent. The company uses straight-line depreciation (non-MACRS-based).

Required

1.    What is this investment’s net after-tax annual cash inflow?

2.    Assume that the net after-tax annual cash inflow of this investment is $5,000; what is the payback period?

3.    Assume that the net after-tax annual cash inflow of this investment is $5,000; what is the net present value (NPV) of this investment?

4.    What are the minimum net after-tax annual cost savings that make the proposed investment acceptable (i.e., the dollar cost savings that would yield a NPV of $0)?

 

Answers

Alpha Geek
(8)
Status NEW Posted 24 May 2017 12:05 PM My Price 8.00

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Attachments

file 1495630036-1336453_1_636310379601701494_Capital-budgeting-Analysis 1.xlsx preview (302 words )
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