Zeon, a large profitable corporation, is considering adding some automatic equipment in its production facilities.

An investment of $\backslash (\backslash$$ $300,000\backslash )$ will produce an initial annual benefit of $\backslash (\backslash$$ $97,500\backslash ),$ but the benefits are expected to decline $\backslash$$$2,000$ per year.

The firm uses Straight$-$Line depreciation, a $4$ year useful life and $\backslash$$$44,000$ salvage value.

Assume that the equipment can be sold for its $\backslash (\backslash$$ $44,000\backslash )$ salvage value at the end of $4$ years.

Also assume a $\backslash (46\backslash \%\backslash )$ income tax rate for state and federal taxes combined.

The following After$-$Tax Cash Flow Table has been prepared.

$\backslash$begin$\{$tabular$\}\{$l$|$l$|$l$|$l$|$l$|$l$|\}$

& $\backslash$multicolumn$\{1\}\{$c$\}\{\backslash$begin$\{$tabular$\}\{$c$\}$

Before$-$Tax $\backslash \backslash$

Year

$\backslash$end$\{$tabular$\}\}$ & $\backslash$begin$\{$tabular$\}\{$c$\}$

Straight$-$Line $\backslash \backslash$

Cash Flow

$\backslash$end$\{$tabular$\}$ & $\backslash$multicolumn$\{2\}\{$c$\}\{\backslash$begin$\{$tabular$\}\{$c$\}$

Income Taxes $\backslash \backslash$

Depreciation

$\backslash$end$\{$tabular$\}\}$ & $\backslash$multicolumn$\{1\}\{$c$\}\{\backslash$begin$\{$tabular$\}\{$l$\}$

After$-$Tax $\backslash \backslash$

Taxable Income at $46\backslash \%$

$\backslash$end$\{$tabular$\}\}\backslash \backslash$

$\backslash$hline $0$ & $\backslash (-300,000\backslash )$ & & & & $\backslash (-300,000\backslash )\backslash \backslash$

$\backslash$hline $1$ & $97,500$ & $64,000$ & $33,500$ & $15,410$ & $82,090\backslash \backslash$

$\backslash$hline $2$ & $95,500$ & $64,000$ & $31,500$ & $14,490$ & $81,010\backslash \backslash$

$\backslash$hline $3$ & $93,500$ & $64,000$ & $29,500$ & $13,570$ & $79,930\backslash \backslash$

$\backslash$hline $4$ & $91,500$ & $64,000$ & $27,500$ & $12,650$ & $78,850\backslash \backslash$

$\backslash$hline

$\backslash$end$\{$tabular$\}$

Is it correct? If not, why not?

It is correct.

It is incorrect. Wrong depreciation used.

It is incorrect. The after$-$tax cash flow is wrong.

It is incorrect. The money made when the equipment is sold in not included in the last year's cash flow.