Beyond -Say Corp. is considering purchasing $55,000 of music recording equipment. The equipment has a market...

Beyond -Say Corp. is considering purchasing $55,000 of music recording equipment. The equipment has a market resale value of $3,000 and is expected to be used over the next four years. Net income after taxes is estimated to be $4,200. The company's required rate of return is 10% and the company uses the straight-line method. The tax rate is 40%. Is this a project that should be undertaken?

Expert Solution

	Amount in $
Net Income after tax	4,200
Add: Depreciation	13,000	(55,000 - 3,000 ) / 4
Net annual cash inflow	17,200

	Amount in $
Present value of net annual cash inflow	54,522	( 17,200 x 3.16987 )
Present value of Salvage value	2,049	(3,000 x 0.68301 )
Total	56,571
Less: Initial Investment	55,000
Net Present value	1,571

The project should be undertaken as the Net present value is Positive.

ekkarill92 answered 2 years ago

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