Obtain the desired salvage value after tax rate of return

Reference no: EM13199445

Zeon, a large, profitable corporation is considering adding some automatic equipment to its production facilities. An investment of 120,000 will produce an initial annual benefit of $29,000, but the benefits are expected to decline $3,000 per year making second year benefits $26,000, third year benefits $23,000, and so forth. If the firm uses sum of year digits depreciation, an 8 year useful life, and 12,000 salvage value, will it obtain the desired 6% after tax rate of return? Assume that the equipment can be sold for its 12,000 salvage value at the end of 8 years. Also assume a 46% income tax rate for state and federal taxes combined.

Reference no: EM13199445

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