A company is considering purchasing an asset for $50,000 that would have a useful life of 8 years and would have a salvage value of $5,000.For tax purposes,the entire original cost of the asset would be depreciated over 8 years using the straight-line method and the salvage value would be ignored.The asset would generate annual net cash inflows of $26,000 throughout its useful life.The project would require additional working capital of $8,000,which would be released at the end of the project.The company's tax rate is 40% and its discount rate is 13%.
Required:
What is the net present value of the asset?

Question

A company is considering purchasing an asset for $50,000 that would have a useful life of 8 years and would have a salvage value of $5,000.For tax purposes,the entire original cost of the asset would be depreciated over 8 years using the straight-line method and the salvage value would be ignored.The asset would generate annual net cash inflows of $26,000 throughout its useful life.The project would require additional working  capital of $8,000,which would be released at the end of the project.The company's tax rate is 40% and its discount rate is 13%.
Required:
What is the net present value of the asset?

Quizplus · Accepted Answer

The Answer of A company is considering purchasing an asset for $50,000 that would have a useful life of 8 years and would have a salvage value of $5,000.For tax purposes,the entire original cost of the asset would be depreciated over 8 years using the straight-line method and the salvage value would be ignored.The asset would generate annual net cash inflows of $26,000 throughout its useful life.The project would require additional working  capital of $8,000,which would be released at the end of the project.The company's tax rate is 40% and its discount rate is 13%.
Required:
What is the net present value of the asset?

A Company Is Considering Purchasing an Asset for $50,000 That