Equity Corp. paid a consultant to study the desirability of installing some new equipment. The consultant recently submitted the following analysis.
Cost of new machine $100,000
Present value of after-tax revenues from operation 90,000
Present value of after-tax operating expenses 20,000
Present Value of depreciation expenses 87,500
Consulting fees and expenses 750
To evaluate whether to purchase the new machine, you would compare the present value of the expected future cash flows, net of tax, and compare it to the cost today to obtain the machine.
Present value of future cash ...
Process is explained and a comment is made about the result.