is considering the The owner of Atlantic City Confectionary purchase of a new semiautomatic candy machine. The machine will cost $21,000 and last 12 years. The machine is expected to have no salvage value at the end of its useful life. The owner projects that the new candy machine will generate $4,600 in after-tax savings each year during its life (including the depreciation tax shield).
is considering the The owner of Atlantic City Confectionary purchase of a new semiautomatic candy machine. The machine will cost $21,000 and last 12 years. The machine is expected to have no salvage value at the end of its useful life. The owner projects that the new candy machine will generate $4,600 in after-tax savings each year during its life (including the depreciation tax shield).
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Alpesh
Transcribed Image Text:EX 16-34 (Algo) Profitability Index; Taxes (Section
2) (LO 16-7)
The owner of Atlantic City Confectionary is considering the
purchase of a new semiautomatic candy machine. The machine
will cost $21,000 and last 12 years. The machine is expected to
have no salvage value at the end of its useful life. The owner
projects that the new candy machine will generate $4,600 in
after-tax savings each year during its life (including the
depreciation tax shield).
Use Appendix A for your reference.
Note: Use appropriate factor(s) from the tables provided.
Required:
Compute the profitability index on the proposed candy
machine, assuming an after-tax hurdle rate of (a) 4 percent, (b) 6
percent, and (c) 8 percent.
Note: Round your final answers to 2 decimal places.
After-Tax Hurdle Rate
(a) 4 percent
(b) 6 percent
(c) 8 percent
Profitability
Index
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