Question: Smith Manufacturing is subject to a 45 income tax rate

Smith Manufacturing is subject to a 45% income tax rate and a 12% hurdle rate. Management is considering buying a new finishing machine that is expected to cost $200,000 and reduce materials waste by $60,000 a year. The machine is expected to have a 10-year lifespan and will have a zero salvage value. For the purpose of this analysis, straight-line depreciation should be used instead of the CCA.

1. Calculate the cash flows.
2. Calculate the present value, the net present value, the internal rate of return, and the profitability index.


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  • CreatedDecember 03, 2014
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