Company A may buy a testing equipment costing $80,000. This equipment is expected to reduce labor costs of the clinical staff by $25,000 annually. The equipment has a useful life of five years and falls in the MACRS three-year property class for cost recovery (depreciation) purposes. Salvage value of $3,000 is expected at the end of the useful life. The corporate tax rate for Company A (combined federal and state) is 28%, and its required rate of return is 15%. (If profits after taxes on the project are negative in any year, the firm will offset the loss against other firm income for that year.) On the basis of this information, what is the ATCF at the end of year 1?
Company A may buy a testing equipment costing $80,000. This equipment is expected to reduce labor costs of the clinical staff by $25,000 annually. The equipment has a useful life of five years and falls in the MACRS three-year property class for cost recovery (depreciation) purposes. Salvage value of $3,000 is expected at the end of the useful life. The corporate tax rate for Company A (combined federal and state) is 28%, and its required rate of return is 15%. (If profits after taxes on the project are negative in any year, the firm will offset the loss against other firm income for that year.) On the basis of this information, what is the ATCF at the end of year 1?
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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Transcribed Image Text:Company A may buy a testing equipment costing $80,000. This equipment is expected to
reduce labor costs of the clinical staff by $25,000 annually. The equipment has a useful life of
five years and falls in the MACRS three-year property class for cost recovery (depreciation)
purposes. Salvage value of $3,000 is expected at the end of the useful life. The corporate tax
rate for Company A (combined federal and state) is 28%, and its required rate of return is
15%. (If profits after taxes on the project are negative in any year, the firm will offset the loss
against other firm income for that year.)
On the basis of this information, what is the ATCF at the end of year 1?
O $25,465.92
O $25,000.00
O $24,534.08
O None of them
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