The owner of Atlantic City Confectionary is considering the purchase of a new semiautomatic candy machine. The

Question:

The owner of Atlantic City Confectionary is considering the purchase of a new semiautomatic candy machine. The machine will cost $25,000 and last 10 years. The machine is expected to have no at the end of its useful life. The owner projects that the new candy machine will generate $4,000 in after-tax savings each year during its life (including the depreciation tax shield).
Required:
Compute the profitability index on the proposed candy machine, assuming an after-tax hurdle rate of:
(a) 8 percent,
(b) 10 percent, and
(c) 12 percent.
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...