An equipment used to stamp plastic parts has a price of $ 200,000. If this equipment is acquired, the old equipment must be sold fully depreciated for $ 20,000. The annual profits from the new equipment before applying depreciation or ISR have been estimated at $ 70,000 over a five-year period. A depreciation of $ 40,000 was applied each year and the new equipment was expected to have no salvage value at the end of five years. The joint ISR charge is 38% of the profit and based on a 30% rate in the case of a gain from the sale of the equipment.

Requested:

a) Determine the Net investment of the new equipment

b) Will this investment be acceptable if the CCPP (cost of Weighted Average Capital) is 12%, use the NPV?

Answer rating: 100% (QA)

a A New Equipment cost 200000 Salvage value of old Equipment Fully Dep 20000 ISR on ... View the full answer