Question: Achord Company wants to determine whether it should invest in a piece of equipment that costs $ 1.5 million and is expected to last 10

Achord Company wants to determine whether it should invest in a piece of equipment that costs $ 1.5 million and is expected to last 10 years. At the end of the 10- year period, the equipment will be scrapped and have no salvage value. Achord has a 12 percent cost of capital. These are the expected after- tax net cash flows of the equipment (excluding the tax shield) and the applicable tax depreciation rates:

Required:

A. Set up a spreadsheet to calculate the present value of the future cash flows assuming a 20 percent tax rate.

B. What is the net present value of this equipment?

C. Should Achord invest in the equipment? Why?

Year After-Tax Cash Flows $ 225,000 200,000 250,000 250,000 (300,000) 250,000 250,000 225,000 125,000 50,000 Tax Depreciation Rates 14.29 24.49 17.49 12.49 8.93 8.92 8.93 4.46 10

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