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What is the cash flow generated each year

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Reference no: EM131789507

Make an investment decision about whether a $60,000 automobile should be purchased or not. Assume the automobile to be purchased
will have a six-year productive life and no salvage value. It will produce income of $15,000 for the first three years before deductions for depreciation and taxes.

In the last three years, the income before depreciation and taxes will be $14,000, $13,000, and $12,000, respectively. Furthermore, assume a tax rate of 35% and a cost of capital of 10% for the analysis.

a) What is the cash flow generated each year?

b) Why is this automobile depreciated in 6 years?

c) Using the present value factor table below, what is the net present value?

d) should the automobile purchase be recommended based on the financial analysis?

Year Present value factor (10%)
1 0.909
2 0.826
3 0.751
4 0.683
5 0.621
6 0.564

Reference no: EM131789507

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