Profitable incorporated business is considering investment

Reference no: EM13322037

A profitable incorporated business is considering an investment in equipment having the following before tax cash flow. The equipment will be depreciated by double declining balance depreciation with conversion, if appropriate, to straight-line deprecation at the preferred time. For depreciation purpose a 700 salvage value at the end of 6 years is assumed. But the actual value is thought to be 1000 and it is the sum that is shown in the before tax cash flow.

Year: 0, 1, 2,3,4,5,6

Before Tax Cash Flow: 12,000, 1727,2414,2,872,3,177,3358,1997, 1000 Salvage value

If the firm wants a 9% after tax rate of return and its combined incremental income tax rate is 34% determine by actual cash flow analysis whether the investment is desirable.

Reference no: EM13322037

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