Find the minimum earnings, Financial Management

Milan Corporation is interested in buying a machine that will cost $50,000, and it will depreciate it on straight-line basis over a 5-year period. The machine is expected to last for 7 years and then Milan will sell it for $5,000. The expected earnings before taxes from the machine is $15,000 with a standard deviation of $5,000. The income tax rate of Milan is 35%, and it uses 10% as discount rate.

(A) Find the minimum earnings before taxes that this machine should generate annually to justify its purchase.

(B) Find the probability that this machine will be profitable.

Posted Date: 2/27/2013 4:35:39 AM | Location : United States

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