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Buying a new asset at a cost

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Kendrick Duckworth has entrusted financial analyst Flower Belle Lee with the evaluation of a project that involves buying a new asset at a 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. Duckworth's discount rate is 11 percent. The company has an income tax rate of 30 percent. Should Flower recommend purchase of the asset?

Reference no: EM131435197

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