Management is considering purchasing an asset for $30,000 that would have a useful life of 5 years and no salvage value.For tax purposes,the entire original cost of the asset would be depreciated over 5 years using the straight-line method.The asset would generate annual net cash inflows of $21,000 throughout its useful life.The project would require additional working capital of $4,000,which would be released at the end of the project.The company's tax rate is 40% and its discount rate is 8%.
Required:
What is the net present value of the asset?

Question

Management is considering purchasing an asset for $30,000 that would have a useful life of 5 years and no salvage value.For tax purposes,the entire original cost of the asset would be depreciated over 5 years using the straight-line method.The asset would generate annual net cash inflows of $21,000  throughout its useful life.The project would require additional working capital of $4,000,which would be released at the end of the project.The company's tax rate is 40% and its discount rate is 8%.
Required:
What is the net present value of the asset?

Quizplus · Accepted Answer

The Answer of Management is considering purchasing an asset for $30,000 that would have a useful life of 5 years and no salvage value.For tax purposes,the entire original cost of the asset would be depreciated over 5 years using the straight-line method.The asset would generate annual net cash inflows of $21,000  throughout its useful life.The project would require additional working capital of $4,000,which would be released at the end of the project.The company's tax rate is 40% and its discount rate is 8%.
Required:
What is the net present value of the asset?

Management Is Considering Purchasing an Asset for $30,000 That Would