ABC Corporation earned a pre-tax profit of $2,000,000 in the current tax year. The corporation is considering
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ABC Corporation earned a pre-tax profit of $2,000,000 in the current tax year. The corporation is considering whether to purchase a new machine for $500,000 that would increase its pre-tax profit to $2,500,000. The machine would have a useful life of 5 years and no salvage value. The corporation's tax rate is 30%.
a) Should the corporation purchase the new machine? Show your calculations. (10 marks)
b) Assume the corporation will purchase the new machine. Calculate the amount of the tax shield that will be generated by the machine over its useful life. (10 marks)
Related Book For
Engineering Economic Analysis
ISBN: 9780195168075
9th Edition
Authors: Donald Newnan, Ted Eschanbach, Jerome Lavelle
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