Pique Corporation plans to purchase a new machine for $300,000. Management estimates that with the machine cash flows from sales will increase by $160,000 each year for the next 5 years. Expenses to generate the additional sales include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $70,000 per year. The firm uses straight-line depreciation with no terminal disposal value for all depreciable assets. The new machine has an expected salvage value of zero at the end of the project. Pique's combined income tax rate is 20%. Management requires a minimum after-tax rate of return of 8% on all investments. a. Calculate the Net Present Value (NPV) for this projec
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Pique Corporation plans to purchase a new machine for $300,000. Management estimates that with the machine
Management requires a minimum after-tax
a. Calculate the
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