Determine the after-tax cash flows for this investment

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Reference no: EM13155758

XYZ company is considering purchasing an asset for $ 100000 that has a 5 year useful life and a $20000 salvage value. DDB depreciation will be used. The asset will produce 50000 a year in savings but will cost 10000 a year to operate. the company is subject to a 35% federal income tax rate and 9% state income tax rate. it uses an after-tax Marr of 20 %.

1. compute the combined(federal+state)income tax rate for XYZ company. Use this rate for computing after-tax cash flows.

2. Determine the after-tax cash flows for this investment. make adjustment in the DDB depreciation charges if necessary in any year in light of the SV of $20k

3. using the after-tax rate of return or present worth, determine if this investment is worth.

4. suppose the company sells the asset at the end of third year for 30000. compute the equipment's final book value in Year 3 and the depreciation recapture,

Reference no: EM13155758

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