A corporation is considering purchasing amachine that will save $150,000 per year beforetaxes. The cost of operating the machine (includingmaintenance) is $30,000 per year. The machine willbe needed for five years, after which it will have azero salvage value. MACRS depreciation will beused, assuming a three-year class life. The marginalincome tax rate is 40%. If the firm wants 15% returnon investment after taxes, how much can it afford topay for this machine?
A corporation is considering purchasing amachine that will save $150,000 per year beforetaxes. The cost of operating the machine (includingmaintenance) is $30,000 per year. The machine willbe needed for five years, after which it will have azero salvage value. MACRS depreciation will beused, assuming a three-year class life. The marginalincome tax rate is 40%. If the firm wants 15% returnon investment after taxes, how much can it afford topay for this machine?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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A corporation is considering purchasing a
machine that will save $150,000 per year before
taxes. The cost of operating the machine (including
maintenance) is $30,000 per year. The machine will
be needed for five years, after which it will have a
zero salvage value. MACRS
used, assuming a three-year class life. The marginal
income tax rate is 40%. If the firm wants 15% return
on investment after taxes, how much can it afford to
pay for this machine?
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