Your company has the opportunity to invest $10000 in a new piece of equipment that will...

 

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Your company has the opportunity to invest $10000 in a new piece of equipment that will generate the following benefits over the next 5 years: Year Benefit ($) 1 Year Tax Rate (%) 2 1 10 3 2487.78 2548.75 2487.78 2548.75 2487.78 They use straight-line depreciation and for estimating purposes, they expect the following tax rates on their taxable income for those 5 years: 2 20 4 3 4 10 20 5 5 10 Alternatively, they could invest the same $10000 in a supplier's business in exchange for a guaranteed after-tax annual return of 4.00% per year after 5 years. They do not have enough money to do both; that is, they will either pick the first option or the second option or neither. Using after-tax values and the topics covered in this class, what should your company do and why? You have to appropriately justify your answer in order to receive the full credit. Your company has the opportunity to invest $10000 in a new piece of equipment that will generate the following benefits over the next 5 years: Year Benefit ($) 1 Year Tax Rate (%) 2 1 10 3 2487.78 2548.75 2487.78 2548.75 2487.78 They use straight-line depreciation and for estimating purposes, they expect the following tax rates on their taxable income for those 5 years: 2 20 4 3 4 10 20 5 5 10 Alternatively, they could invest the same $10000 in a supplier's business in exchange for a guaranteed after-tax annual return of 4.00% per year after 5 years. They do not have enough money to do both; that is, they will either pick the first option or the second option or neither. Using after-tax values and the topics covered in this class, what should your company do and why? You have to appropriately justify your answer in order to receive the full credit.

Answer rating: 100% (QA)

The company should choose to invest in the suppliers business in exchange for ... View the full answer