Is this a profitable investment

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Reference no: EM131506371

Question: The Greentree Lumber Company is attempting to evaluate the profitability of adding another cutting line to its present sawmill operations. They would need to purchase two more acres of land for $30,000 (total). The equipment would cost $130,000 and could be depreciated over a five-year recovery period with the MACRS method. Gross revenue is expected to increase by $50,000 per year for five years, and operating expenses will be $15,000 annually for five years. It is expected that this cutting line will be closed down after five years. The firm's effective income tax rate is 50%. If the company's after-tax MARR is 5% per year, is this a profitable investment?

Reference no: EM131506371

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