5) Pisces Corporation is planning to buy a machine for $20,000 that may run for 4 years (probability 60%), 5 years (probability 30%), or for 6 years (probability 10%). Pisces will depreciate the machine on straight-line basis for 4 years, without any resale. The tax rate of Pisces is 30% and the proper discount rate is 8%. Calculate the minimum annual earnings generated by this machine to be acceptable to Pisces.

5) Pisces Corporation is planning to buy a machine for $20,000 that may run for 4 years (probability 60%), 5 years (probability 30%), or for 6 years (probability 10%). Pisces will depreciate the machine on straight-line basis for 4 years, without any resale. The tax rate of Pisces is 30% and the proper discount rate is 8%. Calculate the minimum annual earnings generated by this machine to be acceptable to Pisces.

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter19: Lease Financing

Section: Chapter Questions

Problem 7P

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