A new machine is expected to produce a MACRS deduction in three years of $50,000.If the company has a 12% after-tax hurdle rate and is subject to a 30% income tax rate,the correct discounted net cash flow to include in an acquisition analysis would be:

Question

Quizplus · Accepted Answer

The correct discounted net cash flow is $10,680. This is calculated by taking the MACRS deduction of $50,000 and multiplying it by the after-tax hurdle rate of 12%. The result is then multiplied by the present value factor for three years at a 12% discount rate, which is 0.7139. This gives a discounted net cash flow of $10,680.

A New Machine Is Expected to Produce a MACRS Deduction