A corporation is considering purchasing a machine that will save $200,000 per year before taxes. The cost of operating the machine, including maintenance, is $80,000 per year. The machine costing $150,000 will be needed for five years, after which it will have a salvage value of $25,000. A straight-line depreciation with no half-year convention applies (i.e., 20% each year). If the firm wants 15% rate of return after taxes, what is the net present value of the cash flows generated from this machine? The firm's income tax rate is 40%.(a) $137,306(b) $218,313(c) $199,460(d) $375.000

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
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A corporation is considering purchasing a machine that will save $200,000 per year before taxes. The cost of operating the machine, including maintenance, is $80,000 per year. The machine costing $150,000 will be needed for five years, after which it will have a salvage value of $25,000. A straight-line depreciation with no half-year convention applies (i.e., 20% each year). If the firm wants 15% rate of return after taxes, what is the net present value of the cash flows generated from this machine? The firm's income tax rate is 40%.
(a) $137,306
(b) $218,313
(c) $199,460
(d) $375.000

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