Year at 40% 10 -400,000 -400,000 1 182,000 86,000 96,000 44,160 137,840 2 178,000 86,000 92,000 42,320 135,680 3 174,000 86,000 88.000 40,480 133,520 4 170,000 86,000 84,000 38,640 131,360 Is it correct? If not, why not? It is correct. It is incorrect. Wrong depreciation used. O 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-
Year at 40% 10 -400,000 -400,000 1 182,000 86,000 96,000 44,160 137,840 2 178,000 86,000 92,000 42,320 135,680 3 174,000 86,000 88.000 40,480 133,520 4 170,000 86,000 84,000 38,640 131,360 Is it correct? If not, why not? It is correct. It is incorrect. Wrong depreciation used. O 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-
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 5P
Related questions
Question
![Year
Cash Flow
Depreciation
Income
at 46%
Cash Flow
10
-400,000
-400,000
1
182,000
86,000
96,000
44,160
137,840
2
178,000
86,000
92,000
42,320
135,680
3
174,000
86,000
88,000
40,480
133,520
41
170,000
86,000
84,000
38,640
131,360
Is 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](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F1c42c596-e157-4513-973b-9676ccd1b6af%2F0dfb17bd-412d-46cb-ab91-383e3ee97cc1%2Ffba8nn_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Year
Cash Flow
Depreciation
Income
at 46%
Cash Flow
10
-400,000
-400,000
1
182,000
86,000
96,000
44,160
137,840
2
178,000
86,000
92,000
42,320
135,680
3
174,000
86,000
88,000
40,480
133,520
41
170,000
86,000
84,000
38,640
131,360
Is 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 its
production facilities.
An investment of $400,000 will produce an initial annual benefit of $182,000, but the
benefits 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-Tax
Straight-Line
Taxable
Income Taxes
After-Tax
Year Cash Flow
Depreciation
Income
at 46%
Cash Flow
10
-400,000
-400,000
1
182,000
86,000
96,000
44,160
137,840
12
178,000
86,000
92,000
42,320
135,680](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F1c42c596-e157-4513-973b-9676ccd1b6af%2F0dfb17bd-412d-46cb-ab91-383e3ee97cc1%2Fwwrz7v2_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Zeon, a large profitable corporation, is considering adding some automatic equipment in its
production facilities.
An investment of $400,000 will produce an initial annual benefit of $182,000, but the
benefits 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-Tax
Straight-Line
Taxable
Income Taxes
After-Tax
Year Cash Flow
Depreciation
Income
at 46%
Cash Flow
10
-400,000
-400,000
1
182,000
86,000
96,000
44,160
137,840
12
178,000
86,000
92,000
42,320
135,680
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