TB MC Qu. 12-83 (Algo) Estimated PV (present value) payback period: Plant Company Plant Company is contemplating the purchase of a new piece of equipment for $47,000. Plant is in the 30% income tax bracket. Predicted annual after-tax cash inflows from this investment are $20,000, $10,000, $12,000, $7,000 and $5.000 for years 1 through 5, respectively. The firm uses straight-line depreciation with no residual value at the end of five years. Assume that the hurdle rate for accepting new capital investment projects for the company is 4%, after-tax. (Note: PV $1 factors for 4% are as follows: for year 1= 0.962, for year 2 = 0.925, for year 3 = 0.889, for year 4 = 0.855, for year 5 0.822; the PV annuity factor for 4%, 5 years 4.452.) At an after-tax discount rate of 4%, the estimated PV (present value) payback period, in years (rounded to two decimal places) is: Multiple Choice 3.07 years. 3.68 years 4.07 years. 4.45 years. More than 5 years.

TB MC Qu. 12-83 (Algo) Estimated PV (present value) payback period: Plant Company Plant Company is contemplating the purchase of a new piece of equipment for $47,000. Plant is in the 30% income tax bracket. Predicted annual after-tax cash inflows from this investment are $20,000, $10,000, $12,000, $7,000 and $5.000 for years 1 through 5, respectively. The firm uses straight-line depreciation with no residual value at the end of five years. Assume that the hurdle rate for accepting new capital investment projects for the company is 4%, after-tax. (Note: PV $1 factors for 4% are as follows: for year 1= 0.962, for year 2 = 0.925, for year 3 = 0.889, for year 4 = 0.855, for year 5 0.822; the PV annuity factor for 4%, 5 years 4.452.) At an after-tax discount rate of 4%, the estimated PV (present value) payback period, in years (rounded to two decimal places) is: Multiple Choice 3.07 years. 3.68 years 4.07 years. 4.45 years. More than 5 years.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 2P

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