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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.
Economic Perspective
A viewpoint that analyzes how individuals make decisions based on scarcity and the incentives that influence those decisions.
Marginal Costs
The uptick in full pricing incurred by the generation of another unit of a product or service.
Marginal Benefits
The increase in utility or satisfaction from consuming or producing an extra unit of a good or service.
Post Hoc
A logical fallacy that assumes that if one event occurs after another, then the first event must have caused the second.
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