1) Zeon a large, profitable corporation is considering adding some automatic equipment to its production facilities. An investment of $120,000 will produce an initial annual benefit of $29,000, but the benefits are expected to decline $3000 per year, making second year benefits $26,000, third-year benefits $23,000, and so forth. If the firm uses sum-ofyears'-digits depreciation, and 8-year useful life, and $12,000 salvage value, then will it obtain the desired 6% after-tax rate of return?. Assume that the equipment can be sold for its $12,000 salvage value at the end of the 8 years. Also assume a 46% income tax rate for state and federal taxes combined.
1) Zeon a large, profitable corporation is considering adding some automatic equipment to its production facilities. An investment of $120,000 will produce an initial annual benefit of $29,000, but the benefits are expected to decline $3000 per year, making second year benefits $26,000, third-year benefits $23,000, and so forth. If the firm uses sum-ofyears'-digits depreciation, and 8-year useful life, and $12,000 salvage value, then will it obtain the desired 6% after-tax rate of return?. Assume that the equipment can be sold for its $12,000 salvage value at the end of the 8 years. Also assume a 46% income tax rate for state and federal taxes combined.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:1) Zeon a large, profitable corporation is considering adding some automatic equipment to its production facilities. An investment of $120,000 will
produce an initial annual benefit of $29,000, but the benefits are expected to decline $3000 per year, making second year benefits $26,000, third-year
benefits $23,000, and so forth. If the firm uses sum-ofyears'-digits depreciation, and 8-year useful life, and $12,000 salvage value, then will it obtain the
desired 6% after-tax rate of return?. Assume that the equipment can be sold for its $12,000 salvage value at the end of the 8 years. Also assume a 46%
income tax rate for state and federal taxes combined.
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