Determine should the device be purchased

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Question: A small research device can be purchased for $10,000 and depreciated by MACRS depreciation. The net benefits from the device, before deducting depreciation, are $2000 at the end of the first year and increasing $1000 per year after that (second year equals $3000, third year equals $4000, etc.), until the device is hauled to the junkyard at the end of 7 years. During the 7-year period there will be an inflation rate f of 7%. This profitable corporation has a 40% combined federal and state income tax rate. If it requires a real 12% after-tax rate of return on its investment, should the device be purchased?

Reference no: EM132171295

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