YearCash FlowDepreciationIncomeat 46%Cash Flow10-400,000-400,0001182,00086,00096,00044,160137,8402178,00086,00092,00042,320135,6803174,00086,00088,00040,480133,52041170,00086,00084,00038,640131,360Is it correct? If not, why not?It is correct.It is incorrect. Wrong depreciation used.It is incorrect. The money made when the equipment is sold in not included in the last year's cash flow.It is incorrect. The after-tax cas Zeon, a large profitable corporation, is considering adding some automatic equipment in itsproduction facilities.An investment of $400,000 will produce an initial annual benefit of $182,000, but thebenefits are expected to decline $4,000 per year.The firm uses Straight-Line depreciation, a 4 year useful life and $56,000 salvage value.Assume that the equipment can be sold for its $56,000 salvage value at the end of 4 years.Also assume a 46% income tax rate for state and federal taxes combined.The following After-Tax Cash Flow Table has been prepared.Before-TaxStraight-LineTaxableIncome TaxesAfter-TaxYear Cash FlowDepreciationIncomeat 46%Cash Flow10-400,000-400,0001182,00086,00096,00044,160137,84012178,00086,00092,00042,320135,680

Variables in the question:Initial investment=$400,000Initial annual benefit=$182,000Decline in…

Answered: Year at 40% 10 -400,000 -400,000 1…

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

Problem 1PS

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