You work for a company that is evaluating equipment that would
increase operational efficiencies but would not increase revenue.
The equipment costs $800,000 and should reduce annual operating
costs by $280,000 over its life. Your firm will use straight-line
depreciation over the 3-year life to a $0 book value. The equipment
will require the firm to hold an extra $25,000 of inventory over
the 3-year period. Assume the firm sells the equipment for $30,000
at the end of the 3-year period. The discount rate is 12 percent,
and the tax rate is 21 percent. What will be the after-tax cash
flow from the sale of the equipment at the end of the project?
increase operational efficiencies but would not increase revenue.
The equipment costs $800,000 and should reduce annual operating
costs by $280,000 over its life. Your firm will use straight-line
depreciation over the 3-year life to a $0 book value. The equipment
will require the firm to hold an extra $25,000 of inventory over
the 3-year period. Assume the firm sells the equipment for $30,000
at the end of the 3-year period. The discount rate is 12 percent,
and the tax rate is 21 percent. What will be the after-tax cash
flow from the sale of the equipment at the end of the project?
