Estimating the corporate tax rate


Scott Investors Inc. is considering the purchase of a $500.000 computer with an economic life of five years. The computer will be fully depreciated over five years using the straight-line method. The market value of the computer will be $100.000 in five years. The computer will replace five office employees whose combined annual salaries are $120.000. The machine will also immediately lower the firm´s required net working capital by $100.000. This amount of net working capital will need to be replaced once the machine is sold. The corporate tax rate is 34%. Is it worthwhile to buy the computer is the appropriate discount rate is 12%?

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Finance Basics: Estimating the corporate tax rate
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