Brandon Company Is Contemplating the Purchase of a New Piece

question 58

Multiple Choice

Brandon Company is contemplating the purchase of a new piece of equipment for $45,000.Brandon is in the 30% income tax bracket.Predicted annual after-tax cash inflows from this investment are $18,000,$15,000,$9,000,$6,000 and $3,000 for years 1 through 5 respectively.The firm uses straight-line depreciation with no residual value at the end of five years.The hurdle rate for accepting new capital investment projects is 4%,after-tax.(Note: the following PV factors for 4%: for 1 year = 0.962,for year 2 = 0.925,for year 3 = 0.889,for year 4 = 0.855,for year 5 = 0.822;the PV annuity factor for 4%,5 years = 4.452. )
At a discount rate of 4%,the net present value is (rounded to the nearest hundred) :

• A)($15,000).
• B)($12,300).
• C)($9,300).
• D)($6,000).
• E)$1,800.

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Definitions:

Compounded Monthly

A method where interest earned is added to the principal, and future interest payments are calculated on the increased principal, with the process repeating each month.

Retirement Savings

Money that has been put aside to be used during retirement, often in specific retirement accounts or investment plans.

Withdraw

To remove funds from a bank account, or to pull back an offer or participation in an activity.

Annual Percentage Rate

The Annual Percentage Rate (APR) is the yearly interest rate charged on borrowed money, encompassing both the interest rate and any associated fees, to represent the total cost of borrowing.