Problem: The general manager of a mining company has a chance to purchase a new drill at a total cost of $250000. recovery period is 5 years. Additional annual pretax cash inflow from operations is $82000. economic life of drill 5 years with no salvage value. tax rate is 35% and the after tax required rate of return is 16%.
1. Compute the NPV, assuming MACRS depreciation for tax purposes. Should the company acquire the drill?
2. Suppose the economic life of the drill is 6 years, which means that there will be an $82000 cash inflow from operations in the sixth year. recovery period is still 5 years. Should the company acquire the drill? show the calculations.