The profitable Palmer Golf Cart Corp. is considering investing $300,000 in special tools for some of the

Question:

The profitable Palmer Golf Cart Corp. is considering investing $300,000 in special tools for some of the plastic golf cart components. Executives of the company believe the present golf cart model will continue to be manufactured and sold for 5 years, after which a new cart design will be needed, together with a different set of special tools.
The saving in manufacturing costs, owing to the special tools, is estimated to be $150,000 per year for 5 years. Assume MACRS depreciation for the special tools and a 39% income tax rate.
(a) What is the after-tax for this investment?
(b) If the company wants a 12% after-tax rate of return, is this a desirable investment?
Payback Period
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...