Kendrick Duckworth has entrusted financial analyst Flower Belle Lee with the evaluation of a project that involves buying a new asset at cost of $90,000. The asset falls under the MACRS three year class and will generate the following revenue stream.
End of year 1 2 3 4
Revenues $ 50,000 30,000 20,000 20,000
The asset has a resale value of $10,000 at the end of the fourth year. Duckworths discount rate is 11 percent.The company has an income tax rate of 30 percent. should Flower recommend purchase of the asset?