Plant Company is contemplating the purchase of a new piece of equipment for $39,000. Plant is in the 40% income tax bracket. Predicted annual after-tax cash inflows from this investment are $17,000, $14.000. $2.000,$9,000 and $6,000 for years 1 through 5, respectively. The firm uses straight-line depreciation with no residual value at the end of five years.Assume that the hurdle rate for accepting new capital investment projects for the company is 4%, after-tax. (Note: PV $1 factors for 4% are as follows: for year 1= 0.962, for year 2 = 0.925, for year 3= 0.889, for year 4 = 0.855.for year 5 = 0.822; the PV annuity factor for 4%, 5 years = 4.452.) At an after-tax discount rate of 4%, the estimated net present value (NPV) of the proposed investment is (rounded to the nearest hundred dollars):Multiple Cholce($12,100)($9.400).($6.400).($3.100).$4.700.

In this we have to calculate the net present value of the equipment.

Answered: and $6.000 for years 1 through 5,…

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

Problem 1PS

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