Question: Mach Force 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

Mach Force has a cost-plus-fixed fee contract with the air force

Mach Force 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 30%. The company has computed the following labor savings for a new equipment that costs $60000: Period 1 Period 2 Before Tax $35,000 $35,000 After Tax $24,500 $24,500 The company has an after-tax time value of money of 7% and the federal government has a before-tax time value of money of 5%. Should the equipment be purchased? INDETERMINATE COMPANY-NO; GOVT-YES COMPANY-NO; GOVT-NO COMPANY-YES; GOVT-YES COMPANY-YES; GOVT-NO

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