Process control equipment purchased for $78,000 by Debco, Incorporated generated a CFBT of $26,080 during the first year of its 10-year estimated life. This would represent a return of 31.2% per year if maintained throughout the 10 years. However, the corporate finance officer determined that the CFAT was only $18,000 for the first year, and it is expected to decrease by $1000 per year thereafter. If the president wants to realize an after-tax return of 12% per year, for how many years must the equipment remain in service?
What will be an ideal response?
For a 12% after-tax return, find n in a PW relation.
–78,000 + 18,000(P/A,12%,n) – 1000(P/G,12%,n) = 0
For n = 8 years: –78,000 + 18,000(4.9676) – 1000(14.4714) = -$3055
For n = 9 years: –78,000 + 18,000(5.3282) – 1000(17.3563) = $551
n = 8.85 years
Keep the equipment for 8.85 (or 9 rounded off) years
You might also like to view...
You are probably familiar with the concept of ____________________ because you are used to looking at your image in a mirror.
Fill in the blank(s) with the appropriate word(s).
Information about the type and spacing of fasteners along the perimeter and in the field of gypsum board is provided in the _____.
a. project specifications b. fastening schedule c. elevation drawings d. hardware list
After conception, the corpus luteum discontinues progesterone production
Indicate whether the statement is true or false
The subsequent problems deal with the circuit below. Assume that when the transistor is in saturation, the collector-to-emitter drop is 0.2 V and the base-to-emitter forward bias voltage is 0.7 V. Assume that the forward bias voltage for the LED is 2 V.
If Vin=0V, what is the voltage at the base of the transistor?
A. 5 V B. 4.3 V C. 0.7 V D. 0.2 V E. 0 V