Michael Company is considering the purchase of a new computer equipment to improve its production scheduling. This new equipment would cost $300,000 with working capital of $14,000 to be committed for the life of the asset. Management estimates that the equipment will improve after-tax cash flows (which already include the tax shield from depreciation) by $96,500 per year. The equipment will have an estimated useful life of four years with no residual value. Michael Company has a minimum required return for similar investments of 10%. Assume that the asset will be placed in service at the beginning of the fiscal year. Calculate the net present value for this investment opportunity.
Michael Company is considering the purchase of a new computer equipment to
improve its production scheduling. This new equipment would cost $300,000
with working capital of $14,000 to be committed for the life of the asset.
Management estimates that the equipment will improve after-tax cash flows
(which already include the tax shield from
The equipment will have an estimated useful life of four years with no
residual value. Michael Company has a minimum required
investments
beginning of the fiscal year. Calculate the
investment opportunity.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
