Zeon, a large, profitable corporation, is considering adding some automatic equipment to its production facilities. An investment of $120,000 will produce an annual benefit of $40,000. If the firm uses 60% bonus depreciation with the balance using 7-year MACRS depreciation, an 8-year useful life, and $12,000 salvage value, will it obtain the desired 12% after-tax rate of return? Assume that the equipment can be sold for its $12,000 salvage value at the end of the 8 years. Also assume a 28% income tax rate for state and federal taxes combined.
Zeon, a large, profitable corporation, is considering adding some automatic equipment to its production facilities. An investment of $120,000 will produce an annual benefit of $40,000. If the firm uses 60% bonus depreciation with the balance using 7-year MACRS depreciation, an 8-year useful life, and $12,000 salvage value, will it obtain the desired 12% after-tax rate of return? Assume that the equipment can be sold for its $12,000 salvage value at the end of the 8 years. Also assume a 28% income tax rate for state and federal taxes combined.
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 5P
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Zeon, a large, profitable corporation, is considering adding some automatic equipment to its production facilities. An investment of $120,000 will produce an annual benefit of $40,000. If the firm uses 60% bonus
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