A firm is considering investing $10 million in equipment which is expected to have a useful life of four years and is expected to reduce the firm's labor costs by $4 million per year. Assume the firm pays a 40% tax rate on accounting profits and uses the straight-line depreciation method.

What is the after-tax cash flow from the investment in years 1 through 4? If the firm's discount rate for this investment is 15% per year, is it worthwhile? What are the investment's IRR and NPV?

Answer rating: 100% (QA)

To calculate the aftertax cash flow from the investment in years 1 through 4 we need to consider the ... View the full answer