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Equipment with a cost of 60 000 will if acquired generate

Question - Equipment with a cost of $60 000 will, if acquired, generate annual savings of $30 000 for six years, at which time it will have no further use or value. The entity has a marginal tax rate of 40 per cent and requires a 10 per cent rate of return. It uses straight-line depreciation. Ignore inflation.

Required

(a) What is the after-tax cash flow for each year?

(b) What is the NPV of this investment?

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Accounting Basics: Equipment with a cost of 60 000 will if acquired generate

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Accounting Basics: Equipment with a cost of 60 000 will if acquired generate

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