The profitable Palmer Golf Cart Corp. is considering investing $300,000 in special tools for some of the plastic golf cart components. The present golf cart model will continue to be manufactured and sold for 5 years, after which a new cart design will be needed, together with a different set of special tools. The saving in manufacturing costs, owing to the special tools, is estimated to be $150,000 per year for 5 years. Assume MACRS depreciation for the special tools and a 27% combined income tax rate. (a) What is the after-tax payback period for this investment? (b) If the company wants a 12% after-tax rate of return, is this a desirable investment?
The profitable Palmer Golf Cart Corp. is considering investing $300,000 in special tools for some of the plastic golf cart components. The present golf cart model will continue to be manufactured and sold for 5 years, after which a new cart design will be needed, together with a different set of special tools. The saving in manufacturing costs, owing to the special tools, is estimated to be $150,000 per year for 5 years. Assume MACRS depreciation for the special tools and a 27% combined income tax rate. (a) What is the after-tax payback period for this investment? (b) If the company wants a 12% after-tax rate of return, is this a desirable investment?
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
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The profitable Palmer Golf Cart Corp. is considering investing $300,000 in special tools for some of the plastic golf cart components. The present golf cart model will continue to be manufactured and sold for 5 years, after which a new cart design will be needed, together with a different set of special tools. The saving in
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