Use the Information for the Question(s)below

question 2

Essay

Use the information for the question(s)below.
Kinston Industries is considering investing in a machine that will cost $125,000 and will last for three years.The machine will generate revenues of $120,000 each year and the cost of goods sold will be 50% of sales.At the end of year three the machine will be sold for $15,000.The appropriate cost of capital is 10% and Kinston is in the 21% tax bracket.
-Assume that Kinston's new machine will be depreciated straight line to a salvage value of $5000 at the end of year three.What is the after-tax salvage value of this project?

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Definitions:

Economic Value

The significance of a good or service for individuals or society in terms of its ability to satisfy needs or wants.

25-year Annuity

A financial product that provides a series of payments made at equal intervals over 25 years.

Compounded Semi-annually

A method of computing interest where the interest is calculated and added to the principal twice a year.

Periodic Interest Rate

The interest rate applied to a loan or investment over a specific period of time, less frequently than annually.