Bob Jensen Incorporated purchased a $660,000 machine to manufacture specialty taps for electrical equipment. Jensen expects...
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Bob Jensen Incorporated purchased a $660,000 machine to manufacture specialty taps for electrical equipment. Jensen expects to sell all it can manufacture in the next 10 years. To encourage capital investments, the government has exempted taxes on profits from new investments. This legislation is to be in effect for the foreseeable future. The machine is expected to have a 10-year useful life with no salvage value. Jensen uses straight-line depreciation. Jensen uses a 10% discount rate in evaluating capital investments, the investment is subject to taxes, and the projected pretax operating cash inflows are as follows: Year 1 2 3 4 5 6 7 9 10 Pretax Cash Inflow $ 66,000 81,000 122,000 203,000 244,000 305,000 275,000 244,000 122,000 81,000 Jensen has been paying 25% for combined federal, state, and local income taxes, a rate that is not expected to change during the period of this investment. The firm uses straight-line depreciation. Assume, for simplicity, that MACRS depreciation rules do not apply. Bob Jensen Incorporated purchased a $660,000 machine to manufacture specialty taps for electrical equipment. Jensen expects to sell all it can manufacture in the next 10 years. To encourage capital investments, the government has exempted taxes on profits from new investments. This legislation is to be in effect for the foreseeable future. The machine is expected to have a 10-year useful life with no salvage value. Jensen uses straight-line depreciation. Jensen uses a 10% discount rate in evaluating capital investments, the investment is subject to taxes, and the projected pretax operating cash inflows are as follows: Year 1 2 3 4 5 6 7 9 10 Pretax Cash Inflow $ 66,000 81,000 122,000 203,000 244,000 305,000 275,000 244,000 122,000 81,000 Jensen has been paying 25% for combined federal, state, and local income taxes, a rate that is not expected to change during the period of this investment. The firm uses straight-line depreciation. Assume, for simplicity, that MACRS depreciation rules do not apply.
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Answer rating: 100% (QA)
1 Unadjusted Payback Period Year 1 Cash Inflow 66000 Year 2 Cash Inflow 81000 Year 1 Year 2 Inflows 66000 81000 147000 Payback Amount Initial Investme... View the full answer
Related Book For
Cost Management A Strategic Emphasis
ISBN: 978-0078025532
6th edition
Authors: Edward Blocher, David Stout, Paul Juras, Gary Cokins
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