The Sip & Dip Donut company is considering the acquisition of a new automatic donut dropper for $600,000. The machine will have a six-year life and will produce before tax cash savings of $200,000 each year. The asset is to be depreciated using the straight-line method with no salvage value. The company's tax rate is 40 percent. What is the after-tax net cash inflow on the investment?
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.
The Sip & Dip Donut company is considering the acquisition of a new automatic donut dropper for $600,000. The machine will have a six-year life and will produce before tax cash savings of $200,000 each year. The asset is to be
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