please show me the calculus process, Thanks. Jennings Creations is considering a
ID: 2494180 • Letter: P
Question
please show me the calculus process,
Thanks.
Jennings Creations is considering an investment in a computer that is capable of producing various images that are useful in the production of commercial art. The computer would cost $20,000 and have an expected life of eight years. The computer is expected to generate additional annual net cash receipts (before-tax) of $6,000 per year. The computer will be depreciated according to the straight-line method and the firm's marginal tax rate is 25 percent. Refer to Jennings Creations. What is the after-tax net present value of the proposed project (using a 16 percent discount rate) Present value tables or a financial calculator are required, $(4,797) $2,261 $6,062 $(454)Explanation / Answer
Depreciation = 20000 / 8 = $ 2500 per year
Tax savings on depreciation = 2500 * .25 =$ 625
After tax cash receipts = 6000 (1 -.25)
= 6000*.75
= 4500
Total after tax benefit = 4500+ 625 =$ 5125
Present value of benefit =PVAF@16%,8 * Annual benefit
= 4.34359*5125
= 22260.90
NPV = Present value -Initial investment
= 22260.9 - 20000
= 2260.9 (approx 2261 )
correct option is "B"
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