Achord Company wants to determine whether it should invest in a piece of equipment that costs $

Question:

Achord Company wants to determine whether it should invest in a piece of equipment that costs $ 1.5 million and is expected to last 10 years. At the end of the 10- year period, the equipment will be scrapped and have no salvage value. Achord has a 12 percent cost of capital. These are the expected after- tax net cash flows of the equipment (excluding the tax shield) and the applicable tax depreciation rates:

Required:

A. Set up a spreadsheet to calculate the present value of the future cash flows assuming a 20 percent tax rate.

B. What is the net present value of this equipment?

C. Should Achord invest in the equipment? Why?

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...