Custom Plastics plans to purchase $4.5 million of equipment in the not-too-distant future. The equipment will have a $600,000 salvage value and will be depreciated over a six-year service life by the straight-line method. Custom is subject to a 30% income tax rate.
The company's accountant is about to perform a net-present-value analysis, assuming a 10% after-tax hurdle rate.
Required:
A. Determine the discounted cash flows that would be reflected in the analysis in year 0 and year 1.
B. Determine the discounted cash flow that would be reflected in the analysis in year 6, assuming that Custom sells the equipment for only $450,000 because of a recent change in market conditions.

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The Answer of Custom Plastics plans to purchase $4.5 million of equipment in the not-too-distant future. The equipment will have a $600,000 salvage value and will be depreciated over a six-year service life by the straight-line method. Custom is subject to a 30% income tax rate.
The company's accountant is about to perform a net-present-value analysis, assuming a 10% after-tax hurdle rate.
Required:
A. Determine the discounted cash flows that would be reflected in the analysis in year 0 and year 1.
B. Determine the discounted cash flow that would be reflected in the analysis in year 6, assuming that Custom sells the equipment for only $450,000 because of a recent change in market conditions.

Custom Plastics Plans to Purchase $4