Net present value, depreciation tax shield (LO1, LO2, LO3, LO5). Polyplast is considering purchasing an...
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Net present value, depreciation tax shield (LO1, LO2, LO3, LO5). Polyplast is considering purchasing an injection-molding machine for $500,000. This machine will, before considering taxes and depreciation, reduce costs by $108,000 per year. Polyplast's tax rate is 30%, and the machine will not have any salvage value at the end of its 10-year useful life. (Assume straight-line depreciation for tax purposes and a discount rate of 12%; further assume that the purchase price is paid now and that all other cash flows occur at year end).
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What is the NPV from purchasing the machine?
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