Should the equipment be purchased

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Reference no: EM131020423

A company, whose earnings put it in the 40% marginal tax bracket, is considering the purchase of a new piece of equipment for $25,000. The equipment will be depreciated by the straight-line method over a 4-year depreciable life to a salvage value of $5000. It is estimated that the equipment will increase the company’s earnings before interest, tax, and depreciation by $8000 for each of the 4 years it is used. Should the equipment be purchased? Use a required rate of return of 10%.

Reference no: EM131020423

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