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Determine the net present value of the investment

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Question - AUT Company wants to invest $10M in new equipment to enhance its manufacturing process. This will result in additional (taxable) cash inflows of $1.3M annually for the next 15 years. The equipment will be depreciated over 10 years (no salvage value). The corporate tax rate is 21%; the discount rate is 5%.

Required - Determine the net present value of the investment for the following two situations (round to the nearest dollar):

(1) Situation 1: The marginal tax rate will decrease to 15% at the end of year 11.

(2) Situation 2: The marginal tax rate will increase to 30% at the end of year 6.

Reference no: EM132550867

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