Problem: After-Tax NPV
Bianchi LLP is evaluating a capital investment proposal for new office equipment for the current year. The initial investment would require the firm to spend $55,000. The equipment would be depreciated on a straight-line basis over five years with no salvage value. The firm's accountant has estimated the before-tax annual cash inflow from the investment to be $16,000. The income tax rate is 50 percent, and all taxes are paid in the year that the related cash flows occur. The desired after-tax rate of return is 15 percent. All cash flows occur at year's end.
What is the net present value of the capital investment proposal? Use the time value of money charts for your calculations. If required, use the minus sign to indicate a negative NPV and round your answer to nearest whole number.
Should the proposal be accepted?
SelectYesNoItem 2
Why or why not?
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