ABC Company can borrow money for capital improvements at 6%.It is evaluating whether it should...
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ABC Company can borrow money for capital improvements at 6%.It is evaluating whether it should invest in a piece of machinery that will generate cash savings for the company of $30,000 per year for 10 years. At that point, the equipment will be worn out, but it can be scrapped for $20,000.00.The cost to purchase the machinery is $200,000.00, which will be a cash transaction.
(a)Using EXCEL's NPV function, calculate the Net Present Value and Internal Rate of Return for this Investment on an after-tax basis, assuming (1) that the company is in a 25% tax bracket; (2) on ABC's tax return, the annual depreciation on the machine will be $18,000, (3) all of the $30,000 annual cash savings in before-tax outflow arises from tax deductible expenses, and(4) the only revenue the company will generate is on the salvage sale.(Use the attached EXCEL spreadsheet).
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