Management Is Considering Purchasing an Asset for $30,000 That Would

question 6

Essay

Management is considering purchasing an asset for $30,000 that would have a useful life of 5 years and no salvage value. For tax purposes, the entire original cost of the asset would be depreciated over 5 years using the straight-line method. The asset would generate annual net cash inflows of $18,000 throughout its useful life. The project would require additional working capital of $8,000, which would be released at the end of the project. The company's tax rate is 30% and its discount rate is 14%.
Required:
What is the net present value of the asset?

---

Definitions:

Economic Growth

An increase in a country's capacity to produce goods and services, compared from one period of time to another.

Credit Default Swaps

Financial derivatives that allow an investor to swap or offset their credit risk with that of another investor.

Insurance Contract

A legal agreement between an insurance company and the policyholder, which specifies the terms for the payment of insurance benefits.

Default

Failure to fulfill a financial obligation, especially failing to make payments on a loan, bond, or other debt instrument.