Managers of Northwest Forge are considering whether to buy some equipment for the companys Fargo plant. The

Question:

Managers of Northwest Forge are considering whether to buy some equipment for the company’s Fargo plant. The equipment will cost $2 million cash and will have a 10-year useful life and zero terminal salvage value. Annual pretax cash savings from operations will be $420,000. The income tax rate is 45%, and the required after-tax rate of return is 14%.

1. Compute the NPV, using a 7-year recovery period and MACRS depreciation for tax purposes.

Should the company acquire the equipment?

2. Suppose the economic life of the equipment is 15 years, which means that there will be $420,000 additional annual cash savings from operations in each of the years from 11 to 15. Assume that a 7-year recovery period and MACRS depreciation is used. Should the company acquire the equipment? Show computations.

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...

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Answer rating: 60% (20 reviews)

1 Cash effects of operations Before tax annual cash inflow 420000 Taxes 45 420000 45 189000 Aftertax cash inflow 231000 Present value 14 231000 52161 ...View the full answer

Answered By

Nicole omwa

Being a highly skilled tutor with at least 5 years of tutoring experience in different areas, I learned how to help diverse learners in writing drafts of research papers, actual research papers and locate credible sources. My assurance is built upon my varied knowledge of a variety of subjects. Furthermore, my involvement and interaction with numerous learners of all levels has allowed me to understand my clients' specific demands. Ultimately, this has aided me in being a better coach to learners to better their grades. Essentially, my responsibilities as a tutor would include: Teaching abilities that assist pupils in enhancing their academic performance Personal interaction with learners to make them understand abstract concepts Inducing new skills and knowledge into their academic journeys Fostering individual reflection, and independent and critical thinking Editing and proofreading Because I am constantly available to respond to your queries, you may decide to rely on me whenever you require my assistance. As an assurance, my knowledge skills and expertise enable me to quickly assist learners with different academic challenges in areas with difficulty in understanding. Ultimately, I believe that I am a reliable tutor concerned about my learner's needs and interests to solve their urgent projects. My purpose is always to assist them in comprehending abstract schoolwork and mastering their subjects. I also understand that plagiarism is a severe offense and has serious ramifications. Owing to this, I always make it a point to educate learners on the numerous strategies to have uniquely unique solutions. I am familiar with the following formatting styles: MLA APA Harvard Chicago IEEE Communication is always the key in every interaction with my learners. Hence, I provide timely communication about the progress of assigned projects. As a result, I make sure that I maintain excellent communication with all of my clients. I can engage with all of my customers more effectively, assisting them with their unique academic demands. Furthermore, I attempt to establish a solid working relationship with my leaners I have exceptional abilities in the below areas; Sociology History Nursing Psychology Literature Health and Medicine Chemistry Biology Management Marketing Business Earth Science Environmental Studies Education Being a teacher who aces in diverse fields, I provide various academic tasks, which include; Academic Reports Movie Reviews Literature Reviews Annotated bibliographies Lab reports Discussion posts Dissertations Case study analyses Research proposals Argumentative Essays I guarantee you high-quality Papers!!!!!

5.00+ 17+ Reviews 32+ Question Solved

Related Book For book-img-for-question

Introduction to Management Accounting

ISBN: 978-0133058789

16th edition

Authors: Charles Horngren, Gary Sundem, Jeff Schatzberg, Dave Burgsta

See More Books

Question Posted: Nov 19, 2014 06:42 AM

See More Questions

Managers of Northwest Forge are considering whether to buy some equipment for the companys Fargo plant. The

Question:

Step by Step Answer:

1 Cash effects of operations Before tax annual cash inflow 420000 Taxes 45 420000 45 189000 Aftertax cash inflow 231000 Present value 14 231000 52161 ...View the full answer

Introduction to Management Accounting

Students also viewed these Corporate Finance questions