Garbriel Company is a manufacturing company operating in Puerto Rico, and has th
ID: 2563185 • Letter: G
Question
Garbriel Company is a manufacturing company operating in Puerto Rico, and has the following data Annual wages and salaries expenses 250,000, Tax rate 30%, Cost of capital 12%; The general manager of the company argues that the company can change its operating structures by introducing more efficient equipment. The related information to the new investment is as follows: The cost of the new equipment 65,000, The useful life of the new equipment is 5 years, The estimated salvage value of the new equipment is 0, The equipment will reduce annual wages and salaries expenses by 9%; What is the Net Present Value of the investment introduced by the general manager?
0
between -$2,000 and -$1,000
between $2,000 and $4,000
Between $5,000 and $6,000
1.0
2.between -$2,000 and -$1,000
3.between $2,000 and $4,000
4.Between $5,000 and $6,000
Explanation / Answer
Answer is Between $5,000 and $6,000
Working Notes:-
Savings in Salaries and Wages net of tax = (250000 x 9%) x (1-0.3) = 15750
Annual Depreciation = (COst of the Asset - Salvage Value) / Life of the asset
= (65000 - 0) / 5
= 13000
Tax Saving Due to Depreciation = 13000 x 30%
= 3900
Annual Cash FLow = 15750 + 3900
= 19650
Year Cash Flow PVF at 12 % Present Value 0 (65,000.00) 1.00000 (65,000.00) 1 19,650.00 0.89286 17,544.64 2 19,650.00 0.79719 15,664.86 3 19,650.00 0.71178 13,986.48 4 19,650.00 0.63552 12,487.93 5 19,650.00 0.56743 11,149.94 NPV 5,833.85Related Questions
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