Finance:Capital budgeting.
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Jared Corp. invests in a piece of equipment that cost $150,000, has a useful life of five years with no salvage value and will be depreciated using straight-line depreciation. The equipment will generate annual revenues of $60,000 and the company will incur annual cash Expenses of $24,000 in operating the equipment. Jared has a tax rate of 40%.
Required:
(1) What is the expected annual after-tax cash flow from this equipment?
(2) What is the internal rate of return (rounded to the nearest tenth of a percent) on the equipment?
(3) What is the net present value of the equipment if the required rate of return is 10%?
(4) Would you recommend the investment?
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Solution Summary
The problem requires that the after-tax cashflows be determined and furthermore the net present value, Internal rate of return as ascertained for an investment choice.
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Jared Corp. invests in a piece of equipment that cost $150,000, has a useful life of five years with no salvage value, and will be depreciated using straight-line depreciation. The equipment will generate annual revenues of $60,000 and the company will incur annual cash Expenses of $24,000 in operating the equipment. Jared has a tax rate of 40%.
Required:
(1) What is the expected annual after-tax cash flow from this equipment?
Income statement
Annual revenues 60,000
Annual ...
Education
- B. Sc., University of Nigeria
- M. Sc., London South Bank University
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