Simple depreciation worksheet The company you work for has been asked to look if potential labor...

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Simple depreciation worksheet The company you work for has been asked to look if potential labor savings of a new automated a

business economics

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Answer 1

Answer #1

As per the straight line depreciation over a period of 4 years,

Annual depreciation = 100000/4 = $25000

Net before tax annual benefits = (30000 - 5000) = $25000

Tax rate = 30%

After tax cash inflows per year = (25000 - depreciation)*(1-tax rate) + depreciation = (25000-25000)*(1-30%) + 25000

After tax cash inflows per year = $25000

So,

NPV = -100000 + 25000*(P/A, 10%, 4)

NPV = -100000 + 25000*3.1699

NPV = -$20752.5 or -$20753

Since the it have negative NPV, then investment is not justified.

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Answer 2

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