Tyson Enterprises is considering investing in a machine that costs $30 000.The machine is expected to generate revenues of $10 000 per year for six years.The machine would be depreciated using the straight-line method over its six-year life and have no salvage value.The company considers the impact of income taxes in all of its capital investment decisions.The company has a 40 per cent income tax rate and desires an after-tax rate of return of 12 per cent on its investment.The net present value of the machine is:

Question

Quizplus · Accepted Answer

The correct choice is A) $2891. This is calculated by first determining the annual after-tax cash flows from the investment, considering depreciation, tax savings, and then discounting these cash flows at the desired after-tax rate of return (12%) to find the net present value (NPV). The positive NPV indicates that the investment is expected to generate a return above the company's desired rate.

Tyson Enterprises Is Considering Investing in a Machine That Costs