Jackson Creations Jackson Creations is considering an investment in a computer that is capable of producing various images that are useful in the production of commercial art.The computer would cost $20,000 and have an expected life of eight years.The computer is expected to generate additional annual net cash receipts (before-tax)of $6,000 per year.The computer will be depreciated according to the straight-line method and the firm's marginal tax rate is 25 percent.
Refer to Jackson Creations.What is the after-tax net present value of the proposed project (using a 16 percent discount rate)? Present value tables or a financial calculator are required.

Question

Quizplus · Accepted Answer

The after-tax net present value (NPV) is calculated by considering the after-tax cash flows, which include the tax shield from depreciation. The NPV is positive at $2,261 when using a 16% discount rate.

Jackson Creations Jackson Creations Is Considering an Investment in a Computer