Marian Company is considering the purchase of equipment for $400,000. The equipment will have a ten year life with no terminal salvage value. Straight-line depreciation will be used for tax purposes
It is expected that the equipment will generate annual sales of $200,000 for ten years and annual production costs, exclusive of depreciation, of $120,000 for ten years. The tax rate is 40%. The required rate of return is 10%. The present value of one for 10 years at 10% is 0.3855. The present value of an ordinary annuity of one for 10 years at 10% is 6.1446. What is the net present value of the equipment?
A) $(6,746)
B) $(42,411)
C) $(80,000 )
D) $(105,059)
A
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