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Business, 17.06.2021 19:50 chloedfite2978
A production equipment at a cost of $500,000 has been purchased by a contract manufacturing company to meet the specifi c needs of customer that had awarded a 4-year contract with the possibility of extending the contract for another 4 years. The company plans to use the MACRS depreciation method for this equipment as a 7-year property for tax purposes. The income tax rate for the company is 39%, and it expects to have an after-tax rate of return of 12% for all its investments. The equipment generated an annual income of $100,000 for the fi rst four years. The customer decided not to renew the contract after 4 years. Consequently, the company decided to sell the equipment for $180,000 at the end of 4 years.
Required:
Compute the after tax cash flow until four years.
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