The oregon Airlines is thinking of paying $385,000 to acquire new luggage scanning and weighing equipment that would make its airport services faster and more cost-efficient. Using this new equipment would save the company $145,000 every year, pre-taxes. This luggage scanning and weighing equipment will follow MACRS five-year property class depreciation schedule. The Oregon Airlines expects to be able to find a buyer who would pay $45,000 when this equipment gets sold at the end of the project. This would be a four-year investment project. $20,000 would be an immediate investment in cash reserve, and the Oregon Airlines foresees the need to increase this cash reserve by $3,100 each year.

The oregon pays 22 percent tax rate on its annual taxable income each year.

9 percent is an appropriate discount rate for all future cash flows of this four-year project.

Use the information in Table 10.7 when needed.

Calculate the Net Present Value of this four-year project. (Do not round your intermediate calculations and only round your final answer to 2 decimal places, e.g., 32.16.)

ANSWER: NPV_____

Should the company buy this new luggage equipment?

A.Yes

B. No

HERE IS THE TABLE FOR 10.7

 

Transcribed Image Text:

Year 1 2 3 4 LO CO 5 6 7 8 Property Class Three-Year 33.33% 44.45 14.81 7.41 Five-Year 20.00% 32.00 19.20 11.52 11.52 5.76 Seven-Year 14.29% 24.49 17.49 12.49 8.93 8.92 8.93 4.46 Year 1 2 3 4 LO CO 5 6 7 8 Property Class Three-Year 33.33% 44.45 14.81 7.41 Five-Year 20.00% 32.00 19.20 11.52 11.52 5.76 Seven-Year 14.29% 24.49 17.49 12.49 8.93 8.92 8.93 4.46

Answer rating: 100% (QA)

Year 0 Cost of equipment 385000 Cash reserve 20000 Total cash flow 385000 20000 405000 Year 1 Saving... View the full answer