Animals, Inc. is considering a machine that will cost $18,000 and which can be sold after 3 years for $2,000. The machine will save Animals costs of $18,000 peryear for 3 years. The machine will be depreciated on a straight line basis over three years to a zero salvage value. Animals has a 20% tax rate and a 10% cost ofcapital. What is the NPV of the machine?Multiple Choice$21997$26.580$22,797$20796

Net present value refers to the method of capital budgeting used for estimating the difference…

Answered: Animals, Inc. is considering a machine…

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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A company is planning to buy a new truck that will cost P700,000 and will be depreciated on a straight-line basis over 5-year period. The new truck will replace another that has a book value of P450,000 and five years useful life remaining. The old truck can be sold for P400,000. The current tax rate is 35%. How much is the net initial investment for the new truck?
A corporation is considering a proposal for the purchase of a machine that will save $130,000 per year before taxes. The cost of operating the machine. including maintenance, is $20,000 per year. The machine will be needed for five years after which it will have a zero salvage value. MACRS depreciation will be used. assuming a three-year class life. The marginal income-tax rate is 40%. If the firm wants 12% IRR after taxes, how much can it afford to pay for this machine?

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