A small-business corporation is considering whether to replace some equipment in the plant. An analysis indicates there
Question:
A small-business corporation is considering whether to replace some equipment in the plant. An analysis indicates there are five alternatives in addition to the do-nothing option, Alt. A. The alternatives have a 5-year useful life with no salvage value. Straight-line depreciation would be used.
Before-Tax Uniform
Cost Annual Benefits
Alternatives (thousands) (thousands)
A $ 0 $ 0
B 25 7.5
C 10 3
D 5 1.7
E 15 5
F 30 8.7
The corporation has a combined federal and state income tax rate of 20%. If the corporation expects a 10% after-tax rate of return for any new investments, which alternative should be selected?
DepreciationDepreciation is an important concept in accounting. By definition, depreciation is the wear and tear in the value of a noncurrent asset over its useful life. In simple words, depreciation is the cost of operating a noncurrent asset producing... 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... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
Step by Step Answer:
Taxation rate 20 yrs of Life 5 Alternatives B C D E F Cost 2500 1000 500 1500 3000 BTCF 750 300 170 ...View the full answer
