Question: Aple Pie has a cost-plus-fixed fee contract with the air force to build jets. The government will buy any additional equipment that it needs on

Aple Pie has a cost-plus-fixed fee contract with the air force to build jets. The government will buy any additional equipment that it needs on a justified cost-savings basis. The incremental tax rate for the company is 25%. The company has computed the following labor savings for a new equipment that costs $45000: Period 1 Period 2 Before Tax $30,000 $30,000 After Tax $22,500 $22,500 The company has an after-tax time value of money of 6.5% and the federal government has a before-tax time value of money of 4%. Should the equipment be purchased? INDETERMINATE COMPANY-NO; GOVT-YES COMPANY-YES, GOVT-YES COMPANY-NO; GOVT-NO COMPANY-YES: GOVT-NO

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