Capital Budgeting with Taxes (Non-MACRS Depreciation); Sensitivity Analysis GravinaCompany is planning to spend $6,000 for a machine that it will depreciate on a straight-line basisover 10 years with no salvage value. The machine will generate additional cash revenues of $1,200 ayear. Gravina will incur no additional costs except for depreciation. Its income tax rate is 35%. Thepresent value annuity factor for 15%, 10 years (from Appendix C, Table 2) is 5.019.Required1. What is the payback period of the proposed investment (in years, and rounded to 1 decimal place) underthe assumption that the cash inflows occur evenly throughout the year?2. What is the accounting (book) rate of return (ARR) based on the initial investment outlay? Round youranswer to 1 decimal place (e.g., 13.571% = 13.6%).
Capital Budgeting with Taxes (Non-MACRS
Company is planning to spend $6,000 for a machine that it will depreciate on a straight-line basis
over 10 years with no salvage value. The machine will generate additional cash revenues of $1,200 a
year. Gravina will incur no additional costs except for depreciation. Its income tax rate is 35%. The
present value annuity factor for 15%, 10 years (from Appendix C, Table 2) is 5.019.
Required
1. What is the payback period of the proposed investment (in years, and rounded to 1 decimal place) under
the assumption that the
2. What is the accounting (book)
answer to 1 decimal place (e.g., 13.571% = 13.6%).
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