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Bright uses the straight-line method of depreciation for

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A Company is considering to invest $480,000 in equipment. Data related to the investment are as follows:

Year Income Before Depreciation and Taxes
1 $130,000
2 $130,000
3 $130,000
4 $130,000
5 $130,000
6

$130,000

Cost of capital is 14 percent.

Bright uses the straight-line method of depreciation for tax purposes. In addition, its tax rate is 35% and the depreciable life of the equipment is 6 years. The equipment has an estimated salvage value of $60,000 at the end of the 6 year. Assume a full year of depreciation is taken in each of the 6 years.

Questions:

  1. Calculate the after-tax cashflows for the first year.
  2. Calculate the accounting rate of return on average investment for year 1.
  3. Calculate the payback period.
  4. Calculate the net present value (NPV)
  5. Calculate the internal rate of return (IRR)

Reference no: EM13583802

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