Use the following to answer questions:
Exron Corp. is considering the purchase of a new machine costing $300,000. The new machine will expand Exron's sales capacity and provide $90,000 in additional cash flows (before taxes) over the next five years. The company has decided to depreciate the machine using the straight-line method and no salvage value. At the end of the five years, Exron expects to sell the machine for $20,000.
Exron has a 40% tax rate and uses a 10% discount rate to evaluate the purchase of new machines.

-What is the after-tax present value of the sale of the machine in five years?

Question

Use the following to answer questions:
Exron Corp. is considering the purchase of a new machine costing $300,000. The new machine will expand Exron's sales capacity and provide $90,000 in additional cash flows (before taxes) over the next five years. The company has decided to depreciate the machine using the straight-line method and no salvage value. At the end of the five years, Exron expects to sell the machine for $20,000.
Exron has a 40% tax rate and uses a 10% discount rate to evaluate the purchase of new machines.
 
-What is the after-tax present value of the sale of the machine in five years?

Quizplus · Accepted Answer

The after-tax present value of the sale of the machine in five years is $7,452. This is calculated by taking the future value of the sale price, which is $12,000, and discounting it back to the present at the after-tax rate of 5%.

Use the Following to Answer Questions