Q.1 Archer Chemical Corp. is considering purchasing new equipment that falls under the three-year MACRS category....

 

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Q.1 Archer Chemical Corp. is considering purchasing new equipment that falls under the three-year MACRS category. The cost is $200,000. Earnings before depreciation and taxes for the next four years will be: Year 1 $ 90,000 105,000 Year 2 Year 3 85,000 35,000 Year 4 The firm is in a 25 percent tax bracket and has a 12 percent cost of capital. Should it purchase the new equipment? (10 marks) Q.1 Archer Chemical Corp. is considering purchasing new equipment that falls under the three-year MACRS category. The cost is $200,000. Earnings before depreciation and taxes for the next four years will be: Year 1 $ 90,000 105,000 Year 2 Year 3 85,000 35,000 Year 4 The firm is in a 25 percent tax bracket and has a 12 percent cost of capital. Should it purchase the new equipment? (10 marks)

Answer rating: 100% (QA)

NPV Total present value of cash inflows cost of equipment 22103178 200000 ... View the full answer