Houston Ltd.is considering an investment in equipment for £45,000. Data related to the investment are as follows: $$\begin{array}{l}
&\text { Cash Flow before }\
\text { Year } & \text { Depreciation and Taxes } \
\hline 1 & £ 30,000 \
2 & 30,000 \
3 & 30,000 \
4 & 30,000 \
5 & 30,000

\end{array}$$ Cost of capital is 18 per cent. Houston claims capital allowances (WDV's) using the straight-line method of depreciation. In addition, their tax rate is 40 per cent, and the life of the equipment is five years with no salvage value.
What is the net present value of the investment?

Question

Houston Ltd.is considering an investment in equipment for £45,000. Data related to the investment are as follows: $$\begin{array}{l}
&\text { Cash Flow before }\
\text { Year } & \text { Depreciation and Taxes } \
\hline 1 & £ 30,000 \
2 & 30,000 \
3 & 30,000 \
4 & 30,000 \
5 & 30,000

\end{array}$$ Cost of capital is 18 per cent. Houston claims capital allowances (WDV's) using the straight-line method of depreciation. In addition, their tax rate is 40 per cent, and the life of the equipment is five years with no salvage value.
What is the net present value of the investment?

Quizplus · Accepted Answer

The Answer of Houston Ltd.is considering an investment in equipment for £45,000. Data related to the investment are as follows: $$\begin{array}{l}
&\text { Cash Flow before }\
\text { Year } & \text { Depreciation and Taxes } \
\hline 1 & £ 30,000 \
2 & 30,000 \
3 & 30,000 \
4 & 30,000 \
5 & 30,000

\end{array}$$ Cost of capital is 18 per cent. Houston claims capital allowances (WDV's) using the straight-line method of depreciation. In addition, their tax rate is 40 per cent, and the life of the equipment is five years with no salvage value.
What is the net present value of the investment?

Houston Ltd Cost of Capital Is 18 Per Cent