Jackson Company is planning to purchase a piece of equipment that will reduce/save direct labor cost by $2.00 per unit of production.Jackson estimates that during the five year life of the equipment, production is estimated to be 30,000 units per year.Sales will not be impacted- the only pre-tax cash flow benefit of this equipment is its more efficient use of direct labor.The equipment will cost $100,000, have a useful life of 5 years, and will require cash fixed costs be incurred of $25,000 per year.If purchased, the equipment will be depreciated at the rate of $20,000 per year.No salvage value for the new equipment is anticipated, due to its customized nature.The tax rate the firm uses for this type of analysis is40%.

Determine theannual after-tax cash flows(AATCF) for that Jackson should use to conduct a net present value analysis.Note you cannot compute a net present value (NPV) as you do not know the appropriate interest rate.

 

Answer rating: 100% (QA)

To determine the annual aftertax cash flows AATCF for conducting a net present value NPV analysis we ... View the full answer