What is the after-tax payback period for investment

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Reference no: EM131810335

The profitable Palmer Golf Cart Corp. is considering investing $300,000 in special tools for some of the plastic golf cart components. Executives of the company believe the present golf cart model will continue to be manufactured and sold for 5 years, after which a new cart design will be needed, together with a different set of special tools. The saving in manufacturing costs, owing to the special tools, is estimated to be $150,000 per year for 5 years. Assume MACRS depreciation for the special tools and a 39% combined income tax rate.

(a) What is the after-tax payback period for this investment?

(b) If the company wants a 12% after-tax rate of return, is this a desirable investment?

Reference no: EM131810335

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