A Local Day Spa Is Considering Investing in a Machine

question 50

Multiple Choice

A local day spa is considering investing in a machine that costs $60 000.The machine is expected to generate revenues of $25 000 per year for five years.The machine would be depreciated using the straight-line method over its five-year life and have no salvage value.The company considers the impact of income taxes in all of its capital investment decisions.The company has a 35 per cent income tax rate and desires an after-tax rate of return of 14 per cent on its investment.The net present value of the machine is:

• A) $36 985
• B) $10 207
• C) $25 828
• D) $22 566

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Definitions:

Power Options

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A plastic card embedded with a microprocessor chip, capable of storing and transacting data, used for various applications like financial transactions and personal identification.