15: You own a fast food restaurant. It costs you $45,000/yr (before taxes) to employ a...

Transcribed Image Text:

15: You own a fast food restaurant. It costs you $45,000/yr (before taxes) to employ a cashier. At a tax rate of 21%, you are considering installing an automated kiosk. This would effectively increase your after-tax cash flow by (1-21%)x the $45k the cashier costs you. The machine can be depreciated over 3 years, straight-line, and costs $150,000. It will last 5 years. Should you buy it? (Use a 10% nominal annual discount rate.) The below table may help you; I filled some of it in already. Year: 1 2 3 4 5 Increase to CF from $35,550 $35,550 $35,550 $35,550 $35,550 lowering labor cost Depreciation tax break N/A N/A Total CF: Advantage to buying machine: 15: You own a fast food restaurant. It costs you $45,000/yr (before taxes) to employ a cashier. At a tax rate of 21%, you are considering installing an automated kiosk. This would effectively increase your after-tax cash flow by (1-21%)x the $45k the cashier costs you. The machine can be depreciated over 3 years, straight-line, and costs $150,000. It will last 5 years. Should you buy it? (Use a 10% nominal annual discount rate.) The below table may help you; I filled some of it in already. Year: 1 2 3 4 5 Increase to CF from $35,550 $35,550 $35,550 $35,550 $35,550 lowering labor cost Depreciation tax break N/A N/A Total CF: Advantage to buying machine:

Answer rating: 100% (QA)

The depreciation tax break will be calculated as follows Depreciation Tax break Total C... View the full answer