A project will require the investment of $108,000 in equipment (straight-line depreciation with a depreciable life of 8 years and zero salvage value) and $25,000 in raw materials (not depreciable). Net annual project income before-tax depreciation will be $24,000. At the end of 8 years the project will be discontinued and the $25,000 investment in raw material will be recovered.
Assume a 34% combined income tax rate for this firm. The firms want a 15% after tax rate of return. Determine by present worth analysis whether the project should be undertaken.