The net initial investment for a piece of construction equipment is $500,000 inc

Question

The net initial investment for a piece of construction equipment is $500,000 increase by $125,000 per year. The Annual cash infl ows are expected to equipment has an 8-year life. What is the payback period? Which of the following factors is generally not important when calculating a project's net present value? a. impact of the project on the income taxes paid. b. method of financing the project under consideration. c. timing of the cash flows relating to the project. d. amount of cash flows relating to the project The Wild West Corporation disposes of a capital asset with an original cost of $185,000 and accumulated depreciation of $155,000 for $50,000. The company's tax rate is 35%. What is the after-tax cash inflows or (outflows) from the disposal of the capital asset

Explanation / Answer

Payback period=Initial Investment//Annual cash inflows of the project

=500000/125000

=4 years

Impact of project on income taxes oaid has no impact in calculation of net present value.

Wild West Corporation

Original Cost $185000

Acc.Depreciation $155000

Net Value $30000

Sale Value $50000

- Net Value $30000

Profit on sale of asset $20000

- Tax@35% $7000

After tax cash inflows $13000

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