Jolly Ltd.is considering an investment in equipment for £25,000. Data related to the investment are as follows: $\begin{array}{cc}
&\text { Cash Flow before }\
\text { Year } & \text { Depreciation and Taxes } \
\hline 1 & £ 12,500 \
2 & 12,500 \
3 & 12,500 \
4 & 12,500
\end{array}$
Jolly claims capital allowances using the straight-line method of depreciation. In addition, its tax rate is 40 per cent, and the life of the equipment is four years with no salvage value. Cost of capital is 12 per cent. What is the net present value of the investment?

Question

Jolly Ltd.is considering an investment in equipment for £25,000. Data related to the investment are as follows: $\begin{array}{cc}
&\text { Cash Flow before }\
\text { Year } & \text { Depreciation and Taxes } \
\hline 1 & £ 12,500 \
2 & 12,500 \
3 & 12,500 \
4 & 12,500
\end{array}$
 Jolly claims capital allowances using the straight-line method of depreciation. In addition, its tax rate is 40 per cent, and the life of the equipment is four years with no salvage value. Cost of capital is 12 per cent. What is the net present value of the investment?

Quizplus · Accepted Answer

The Answer of Jolly Ltd.is considering an investment in equipment for £25,000. Data related to the investment are as follows: $\begin{array}{cc}
&\text { Cash Flow before }\
\text { Year } & \text { Depreciation and Taxes } \
\hline 1 & £ 12,500 \
2 & 12,500 \
3 & 12,500 \
4 & 12,500
\end{array}$
 Jolly claims capital allowances using the straight-line method of depreciation. In addition, its tax rate is 40 per cent, and the life of the equipment is four years with no salvage value. Cost of capital is 12 per cent. What is the net present value of the investment?

Jolly LtdIs Considering an Investment in Equipment for £25,000 Jolly Claims Capital Allowances Using the Straight-Line Method of Depreciation