Appendix A:

Exercise 16-34 Profitability Index; Taxes (Section 2) (LO 16-7) The owner of Atlantic City Confectionary is considering the purchase of a new semiautomatic candy machine. The machine will cost $22,000 and last 8 years. The machine is expected to have no salvage value at the end of its useful life. The owner projects that the new candy machine will generate $5,000 in after-tax savings each year during its life (including the depreciation tax shield). Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.) Required: Compute the profitability index on the proposed candy machine, assuming an after-tax hurdle rate of (a)6 percent, (b) 8 percent, and (c) 10 percent. (Round your final answers to 2 decimal places.) Future Value and Present Value Tables Table II Futuro V/al of a Sorioc of $1n Cach Flnus Inrelinany Annuitu (1+r)n1 Table III Present Value of $1.00_1 1(1n1)