Justify purchasing the electronic testing device

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The Able Corporation is considering the installation of a small electronic testing device for use in conjunction with a government contract the firm has just won. The testing device will cost $20,000 and will have an estimated salvage value of $5000 in 5 years when the government contract is finished. The firm will depreciate the instrument by MACRS using 5 years as the class life.

Assume that Able pays 40% federal and state corporate income taxes and uses 8% after-tax in economic analysis. What minimum equal annual benefit must Able obtain before taxes in each of the 5 years to justify purchasing the electronic testing device?

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Reference no: EM13774342

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