Megan Inc Has a Policy of Not Accepting Any Investment Proposal

question 129

Essay

Megan Inc. has a policy of not accepting any investment proposal that requires more than three years to payback. The company is considering the purchase of new drafting equipment for $630,000. The equipment has an estimated useful life of seven years. Megan will use straight-line depreciation for this asset, with no salvage value. Megan's income tax rate, t, is approximately 25%.
Required:
Determine the required before-tax savings per year (rounded to nearest whole number) for the drafting equipment to meet the company's three-year payback requirement.

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Definitions:

Identify

The act of recognizing or establishing the nature or characteristics of something.

Organization

A structured group of individuals working together to achieve collective goals through coordinated activities.

Older People

Individuals in the latter part of their life, often considered to be beyond the middle age, and experiencing the effects of aging.

Ethical

Pertaining to moral principles or the branch of knowledge dealing with moral questions, often guiding conduct.