Springer Company Is Considering the Purchase of a New Machine

question 18

Multiple Choice

Springer Company is considering the purchase of a new machine for £80,000. The machine would generate an annual cash flow before depreciation and taxes of £28,778 for five years. At the end of five years, the machine would have no salvage value. The company's cost of capital is 12 per cent. The company claims capital allowances based on straight-line depreciation and has a 40 per cent tax rate. What is the net present value for the machine?

• A)£5,318
• B)£-0-
• C)£85,318
• D)£23,744

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Definitions:

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