Lofty Expectations is considering purchasing a piece of equipment worth $1,000,000. The machine would have a net $0 of pre-tax cash flows: the expense required to maintain the machine would offset any revenues generated. The machine would be depreciated over the course of 40 years, after which time the machine would be scrapped.
Assuming that the company takes a full year of depreciation the first year, the tax rate is 25%, and the discount rate is 5%, what is the Net Present Value of the proposed machine?

Question

Lofty Expectations is considering purchasing a piece of equipment worth $1,000,000. The machine would have a net $0 of pre-tax cash flows: the expense required to maintain the machine would offset any revenues generated. The machine would be depreciated over the course of 40 years, after which time the machine would be scrapped. 
Assuming that the company takes a full year of depreciation the first year, the tax rate is 25%, and the discount rate is 5%, what is the Net Present Value of the proposed machine?

Quizplus · Accepted Answer

The Answer of Lofty Expectations is considering purchasing a piece of equipment worth $1,000,000. The machine would have a net $0 of pre-tax cash flows: the expense required to maintain the machine would offset any revenues generated. The machine would be depreciated over the course of 40 years, after which time the machine would be scrapped. 
Assuming that the company takes a full year of depreciation the first year, the tax rate is 25%, and the discount rate is 5%, what is the Net Present Value of the proposed machine?

Lofty Expectations Is Considering Purchasing a Piece of Equipment Worth