Galveston Corporation Is Considering an Investment in Equipment for $45,000

question 89

Multiple Choice

Galveston Corporation is considering an investment in equipment for $45,000. Data related to the investment are as follows: $$\begin{array}{l}\begin{array} { c c } &\text { Cash Flow before }\\\text { Year } & \text { Depreciation and Taxes } \\& \$ 30,000 \\2 & 30,000 \\3 & 30,000 \\4 & 30,000 \\5 & 30,000\end{array}\end{array}$$ Cost of capital is 18 percent. Galveston uses the straight-line method of depreciation with no mid-year convention. In addition, their tax rate is 40 percent, and the life of the equipment is five years with no salvage value. What is the net present value of the investment?

• A)$67,543
• B)$22,543
• C)$48,810
• D)$11,286

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Definitions:

Production Department

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