You Are Considering Investing in a Piece of Equipment to Implement

question 315

Multiple Choice

You are considering investing in a piece of equipment to implement a cost-cutting proposal. The pre-tax cost reduction is expected to equal $41.67 for each of the three years of the project's life.
The equipment has an initial cost of $125 and belongs in a 20% CCA class. Assume a 34% tax
Bracket, a discount rate of 15%, and a salvage value of zero.
If the equipment is sold to another company at the end of year 3 for $20, what is the PI?

• A) 0.31
• B) 0.46
• C) 0.77
• D) 1.09
• E) 1.31

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Definitions:

No-action Letters

are statements issued by regulatory agencies indicating that the agency does not intend to take legal action against a specifically proposed activity.

Exempted Offerings

Securities offerings that are released from the registration requirements with the SEC, generally due to their limited nature.

Shareholder Proposals

Suggestions or demands made by shareholders for consideration and action by the company's board of directors.

Rule 10b-5

A regulation enacted by the Securities and Exchange Commission dealing with fraud and manipulation in the securities markets.