ABC Corporation has provided the following information concerning a capital budg
ID: 1197770 • Letter: A
Question
ABC Corporation has provided the following information concerning a capital budgeting project:
The working capital would be required immediately and would be released for use elsewhere at the end of the project. The company uses straight-line depreciation. The depreciation expense will be $60,000 per year. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. The income tax rate is 30% and the after-tax discount rate is 15%.
Explanation / Answer
LIFE OF THE YEAR BE 2 YEARS
PARTICULARS YEAR CASH FLOW DISCOUNT PRESENT VALUE
TAX SAVINGS ON DEPRECIATION 0 60000 1.626 97560