Jennings Creations
Jennings 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 Jennings 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 of the proposed project is $2,261. This is calculated by taking the present value of the after-tax cash flows and subtracting the initial investment. The after-tax cash flows are calculated by taking the before-tax cash flows and multiplying them by (1 - the tax rate). The present value of the after-tax cash flows is calculated by multiplying them by the present value factor for 16% and 8 years. The initial investment is $20,000.

Jennings Creations Jennings Creations Is Considering an Investment in a Computer That