# At a cash cost of ($330,000,) Monona, Inc., can acquire equipment that will save ($100,000) in annual

## Question:

At a cash cost of \($330,000,\) Monona, Inc., can acquire equipment that will save \($100,000\) in annual cash operating expenses.

No salvage value is expected at the end of its five-year useful life. Assume the machine will be depreciated over five years on a straight-line basis on both the books and the tax return. The income tax rate is 30% and Monona has a 10% cutoff rate when using a net present value analysis.

**Required**

**a.** What are the annual after-tax cash savings in operating expenses?

**b.** What are the annual tax savings from the depreciation tax shield?

**c.** Compute the cash payback period.

**d.** Compute the average rate of return.

**e.** Compute the net present value and indicate whether it is positive or negative (round amounts to nearest dollar).

**f.** Compute the excess present value index.

## Step by Step Answer:

**Related Book For**

## Managerial Accounting For Undergraduates

**ISBN:** 9781618531124

1st Edition

**Authors:** Christensen, Theodore E. Hobson, L. Scott Wallace, James S.